Water is increasingly becoming scarce due to competing demands from agriculture, industry, recreation and the environment. With increased concerns regarding climate change and environmental water demand, system managers and irrigators are being forced to consider deficit-irrigation options. This study illustrates the potentials of deficit irrigation as an effective adaptive response to climate change and environmental water demand in achieving efficiency gains, water saving and maximizing benefits that could be achieved at system level. We compared three scenarios: optimization with full irrigation, optimization with deficit irrigation and deficit irrigation without optimization. A non-linear optimization model, which uses crop production function and profit functions endogenously, was used to evaluate the potential of deficit irrigation. The results show that optimization with deficit irrigation could result in both environmental flows and maximizing net returns objectives, increase overall water use efficiency, and therefore offer an effective adaptive response against climate change. We envisage deficit irrigation could be used as a cost-effective adaptive response for meeting climate and environmental objectives. Water saved through deficit irrigation could be used to restore environmental balance through augmenting environmental flows.