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Reducing the yield loss of inferior crop species is crucial for improving the production of intercropping systems, particularly in drought-prone regions. Yet, the physiological mechanism of yield loss caused by interspecific competition in response to soil water availability is unclear. A two-year (2018–2019) field experiment was conducted to explore the impacts of interspecific competition on yield formation of the inferior crop in the maize-faba bean intercropping system with and without plastic film mulching in a semiarid rainfed region. The plant-water relation, and yield formation in association with nitrogen (N) remobilization were determined and compared. Results indicated that the land equivalent ratio of the intercropping system was greater than 1, regardless of whether treated with plastic mulching. However, the net effect of the intercropping system was significantly greater than 0 only under plastic mulching. Intercropping with faba beans prolonged the anthesis-silking interval of maize by 93.7% (p < 0.05) and the bald tip length by 56.2% (p < 0.05). This trend resulted in insufficient pollination of tassels and an increased kernel abortion rate in maize (p < 0.05). Moreover, the amount of dry matter and N transfer to grain in vegetative organs decreased by 34.0% and 23.2% (p < 0.05), respectively. Physiologically, this brought about yield loss in the intercropped maize. Water competition from faba bean significantly reduced the soil water availability in the intercropped maize strips, regardless of whether treated with plastic mulching. However, plastic mulching alleviated the competition for water between faba bean and maize, and thus kernel abortion in maize was significantly reduced. Our findings reveal the physiological mechanism of yield loss in intercropped inferior species, by connecting kernel formation and remobilization function, in the semi-arid and rainfed intercropping systems. Specific water or nutrient management strategies might be needed for inferior crops to further improve the total productivity of cereal-legume intercropping system in drought-prone environments. [Display omitted] • The yield loss mechanism of inferior crops in legume-based intercropping system is unclear. • Growth loss of maize in cogrowth period cannot be compensated in late seed filling period. • Water competition lowered remobilization function and increased kernel abortion of maize. • Plastic mulching (PM) weakened plant competition and conducive to maize final yield formation. • PM is a promising option to improve the productivity of intercropping system in rainfed regions. [ABSTRACT FROM AUTHOR]