To develop genotypes that can yield, better under water stress conditions, plant breeders must have knowledge about gene action and combining abilities of parents for various quantitative traits related to drought tolerance. The objective of the study was to provoke genetic information which may be used in cotton breeding program to enhance drought tolerance. Thirty cotton genotypes were screened on the basis of root and shoot length at seedling stage in glasshouse. Ten cotton genotypes namely NIAB-111, CP-15/2, BH-160, CIM-1100, CRIS-134, CIM-446, FH-900, MNH-93, CIM-707 and CIM-482 were declared to be drought tolerant due to overwhelming performance. In contrast, CIM-506, NIAB Karishma, MNH-129, FH-1000, S-12 and Acala-1517C were identified as drought sensitive, later on they were hybridized following Line × Tester mating fashion. Breeding potential of sixty families along with parents was assessed for plant height, monopodial branches per plant, sympodial branches per plant, number of bolls per plant, seed index, uniformity index and excised leaf water loss. Analysis of variance revealed the predominance of non-additive genetic effects in the inheritance of characters studied. The plants selected in early segregating generation may not be dependable, but selection at later segregating generations may show good level of tolerance to water stress.