At least 50% of India's total irrigated area is dependent on groundwater and there are wide variations in terms of its access and usage. Of late, over-exploitation of groundwater and falling water table levels across the country has become a cause of concern. Though there are many strategies to arrest this trend, crop diversification and water use efficiency stand out as they reduce farmer's risk besides improving resource use efficiency and scaling down cultivation cost. In this context, the present study was conducted in the groundwater exploitation areas of Saurashtra region, Gujarat to understand the extent and feasibility of crop diversification and water-use efficiency. For this study, Harfindahl and Margalef indices were worked out and water use efficiency (WUE) was estimated. The findings revealed Harfindahl indices between 0.65 and 0.91 indicating lesser preference for crop diversification in the study area. Further, Margalef Index (MI) of cotton (1.10) and groundnut (0.52) indicated higher concentration of these crops. The water consumption levels (in HP hrs /ha) for cotton (291.94 to 1050.97) and groundnut (209.85 to 424.03) were found to be highly varying among the farmers. Similarly, average WUE (in HP hrs/qtl) was 35.10 (groundnut) and 56.98 (cotton). Though the WUE of Chilly crop (8.49) was found higher, its average gross returns (Rs. 19,222/ha) was observed to be lower than that of groundnut (Rs. 25,081/ha) and cotton (Rs. 54,373/ha). Accordingly, the study suggests that income, price and adaptation factors are crucial for successful adoption of crop diversification and WUE leading to scaled down risks, costs and boost farm profitability, which in turn may result in sustainable agriculture.