Fiber length of cotton (Gossypium hirsutum L.) decreases under drought stress, potassium (K) could diminish the decreased caused by drought, but the mechanism associated with this alleviation effect is not clear. We evaluated the effect of K on fiber elongation using two cotton cultivars, Simian 3 and Siza 3, grown in well-watered and drought-stressed conditions. Potassium fertilizer (K2O) was applied 0, 150, or 300 kg ha−1 in each growing condition. Drought stress reduced the final fiber length due to a decline in the maximum rate of rapid elongation (Vmax, mm day−1). The application of K alleviated the drought-induced fiber length reduction by increasing Vmax. At 10 and 15 days post-anthesis (DPA), drought significantly reduced osmotic potential (OP) and increased K+ and malate contents at all K rates, relative to well-watered conditions, which was associated with increased activities of phosphoenolpyruvate carboxylase (PEPC), V-ATPase, PPase, and PM H+-ATPase in cotton fiber. However, the relative contribution of K+ and malate to OP declined under drought in comparison with well-watered condition. Compared with control without K, K application decreased OP and increased the accumulation of osmolytes (K+, malate and soluble sugar) as well as the activities of related enzymes in fiber irrespective of water treatments. Moreover, K application increased osmotic adjustment during drought, and improved the contribution of K+ and malate to OP, especially under drought stress. This study showed that drought decreased fiber length by reducing Vmax, and K application ameliorates the decline in fiber elongation due to drought by enhancing osmolytes accumulation and their contribution to OP in fiber cells.