Climate change has increased the frequency and intensity of abiotic stresses, especially drought has become the major threat to cotton production worldwide due to long and intense dry spells in many cotton growing areas. Drought stress curtails the photosynthesis, carbohydrate metabolism (starch, sucrose synthesis), activities of several enzymes including vacuolar invertase and sucrose synthase, etc., which are involved in fiber development. Moreover, drought stressed cotton plant has poor assimilate translocation towards reproductive tissues, leading to poor pollen functioning, reproductive failure, and inferior fiber quality. The development of drought tolerant cotton genotypes using transgenes or QTL based molecular breeding approaches has proved effective in improving drought tolerance and fiber quality in cotton. The use of plant growth regulators and mineral elements can also aid in enhancing drought stress tolerance, fiber yield, and quality of cotton through initiating stress response related signaling cascades. Although, effects of drought stress in cotton are well reported, but variations in fiber quality due to the drought are not well explored. During the last few years, progress has been observed to understand these mechanisms which are critically reviewed here. This review highlights the water deficit stress induced habitual, physiological and biochemical changes during the reproductive growth leading to poor development of fiber. It also highlights the effect of drought stress on assimilate accumulation and portioning in reproductive tissues of cotton which finally converts into the fiber. This review will help devise new research to mitigate the negative impact of global climate change on world cotton production and fiber quality.