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Incorporating cover crops into the rotation is a practice applied across many parts of the globe to enhance soil biological activities. In dryland farming, where crop production is highly dependent on rainfall and soil water storage, cover cropping can affect soil water, yet its effects on soil hydrological and biological health require further investigation. The objective of this study was to evaluate the effect of different timing of summer sorghum cover crop termination on soil water, total and labile organic carbon, arbuscular mycorrhizal fungi and their mediating effects on wheat yield. Through on-farm trial, soil characteristics along with wheat biomass, yield and grain quality were monitored. In comparison with the control (fallow), the early terminated cover crop was the most effective at retaining greater soil water at wheat sowing by 1~4% in 0–45cm soil profile. An increase in water use efficiency, yield and grain protein by 10%, 12% and 5% was observed under early termination. Under late terminated summer cover crop, there was 7% soil water depletion at wheat planting which resulted in 61% decline in yield. However, late-terminated cover crop achieved the greatest gain in soil total and particulate organic carbon by 17% and 72% and arbuscular mycorrhizal fungal Group A and B concentration by 356% and 251%. Summer cover crop incorporation resulted in a rapid gain in labile organic carbon, which constituted hotspots for arbuscular mycorrhizal fungi growth, conversely, fungal activities increased labile organic carbon availability. The combined effect of increased soil water at sowing and over the growing season, organic carbon, and microbial activities contributed to greater yield. The findings suggest that summer cover cropping with timely termination can have implications in managing soil water at sowing time and enhancing soil water storage during the season, soil carbon, and facilitating microbial activities while enhancing productivity in the dryland cropping system. [ABSTRACT FROM AUTHOR]