More frequent droughts and an increased pressure on water resources, combined with social licence to operate, will inevitably decrease water resources available for fully irrigated cotton production. Therefore, the long-term future of the cotton industry will require more drought tolerant varieties that can perform well when grown in rainfed cropping regions often exposed to intermittent drought. A trait that limits transpiration (TRLim) under an increased vapour pressure deficit (VPD) may increase crop yield in drier atmospheric conditions and potentially conserve soil water to support crop growth later in the growing season. However, this trait has not been tested or identified in cotton production systems. This study tested the hypotheses that (1) genetic variability to the TRLim VPD trait exists among ten genotypes in the Australian cotton breeding program; (2) genotypes with a TRLim VPD trait use less water in high VPD environments, and (3) that variation in yield responses of cotton genotypes is linked with the VPD environment and water availability during the peak flowering period. This study combined glasshouse and field experiments to assess plant transpiration and crop yield responses of predominantly locally bred cotton genotypes to a range of atmospheric VPD under Australian climatic conditions. Results indicated that genetic variation to the limiting transpiration VPD trait exists within cotton genotypes in the Australian breeding program, with five genotypes identified as expressing the TRLim VPD trait. A modelling study suggests that this trait may not necessarily result in overall reduced plant water use due to greater transpiration rates at lower VPD environments negating the water conservation in high VPD environments. However, our study showed that the yield response of cotton genotypes is linked with both VPD environment and water availability during the peak flowering period. Yield performance of the TRLim genotype was improved at some high VPD environments but is unlikely to out-perform a genotype with a lower yield potential. Improved understanding of integrated plant- and crop- level genotypic responses to the VPD environments will enhance germplasm development to benefit cotton production in both rainfed and semi-irrigated cotton systems, thereby meeting the agricultural challenges of the 21st Century.