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During the last few years, due to inadequate rainfall, Iran has faced water scarcity. This made the fertile zones including the Fars Province and especially the Marvdasht District to face many problems. Salt concentrations increase and the groundwater resources reduction in the central part of this district are currently occurring. Recently, the farmers have attempted to change the cultivation pattern by cultivation of salt-resistant plants including olive and pistachio. Therefore, in this study, interaction between salinity of the irrigation water and the water deficit on physiological growth of the olive plant (Olea europaea L.) was investigated. The experiment was conducted as a completely randomized block design for three years (2013-2015) in a 7-years-old olive grove (Roghani-Fishomi cultivar) grown in a sandy soil with planting density of 5.5×5.5 meters. Treatments included five Irrigation levels (I1= 25%, I2= 50%, I3= 75%, I4= 100%, and I5= 125 percent of olive water requirements) and three Salinity levels of 2.2 to 7.7 dS m-1 (S1), incorporation of 50% well water with 50% drinking water from the local region (S2), and pure drinking water from the region (S3= Salinity of 0.4 to 0.85 dS m-1) of irrigation water. Treatments were applied in a factorial arrangement, with three replications. Daily irrigation of trees was performed by drip irrigation. The results showed that in all of the three consecutive years, the highest Intrinsic Water Use Efficiency (IWUE) values were obtained in I3S1 (131.94, 114.14 and 96.95 by years, respectively). Also, the highest transpiration efficiency was achieved in I3S3 (1.24, 1.06 and 0.88 respectively). In high salinity, due to the stress applied to the olive trees, leaf water potential decreased and, consequently, the water in the leaves could not meet the existing VPDl.a (saturation Vapor Pressure Deficit near leaf area), thus causing stomatal closure and reduction in stomatal conductance (gs). Generally, for I1 to I4 irrigation levels, the highest salinity effect on Transpiration Efficiency (TE) happened in S3 salinity level. [ABSTRACT FROM AUTHOR]