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Dryland crops produce limited amounts of residue, thus the water conservation benefits of no-tillage (NT) may be reduced. We compared infiltration, runoff, and water conservation effects of NT with stubblemulch (SM) tillage at Bushland, Texas, in the semiarid southern Great Plains. From 1981 to 1992, we cropped six field-sized (2 to 4 ha) graded-terraced watersheds in a dryland, three-year, winter wheat (Triticum aestivum L.)-sorghum [Sorghum bicolor (L.) Moench]-fallow (WSF) sequence. There were three pairs of watersheds in the sequence, each with NT and SM treatments maintained on the same watersheds each year. Runoff was measured with H-flumes from each watershed beginning in 1984. Infiltration differences were measured with a rainfall simulator in 1990 and 1991. We compared soil water storage during fallow to evaluate the water conservation effectiveness of tillage treatments. Terminal infiltration rates were similar for both tillage systems; however, infiltration rates declined much more rapidly with NT than with freshly tilled SM, primarily due to surface sealing even though residue coverage exceeded 50% on NT. Cumulative infiltration after 2 h of simulated rainfall was 90% greater on SM than on NT for tests conducted during fallow after sorghum, and 26% greater during fallow after wheat. Infiltration was greater on SM because tillage destroyed the consolidated surface crust, decreased bulk density, and increased surface roughness and depression storage capacity. The first artificial rainfall application compacted and smoothed the surface on the SM treatment; thus, infiltration during subsequent tests was similar for both tillage systems. Storm runoff measured with H-flumes averaged 25.5 and 40.1 mm/year for eight cycles of WSF for SM and NT treatments, respectively, with most runoff occurring during fallow periods. Despite greater surface runoff from the NT system than from the SM system, NT management resulted in improved water conservation due to reduced evaporation. Total plant available soil water storage during fallow after sorghum was 18% greater with the NT treatment and 10% greater during fallow after wheat than for soil water storage obtained with the SM treatment. More intensive cropping with less fallow appears possible on drylands by using NT management.