In 21 century, the restrictions of water resources shortage and eco-environmental crisis in the urbanization process in arid area are even more evident. However, what are the real roles of water resources and eco-environment in the urbanization process? What kind of urbanization modes should be adopted under the dual restraints of water resources and eco-environment? This paper reviewed the domestic and international research progress about the theories, ideas, methods and practices of the research of urbanization and eco-environment in arid area. Then the viewpoint that the relation between urbanization and eco-environment is mutual promotion while inter-coercing was put forward. Finally, the author pointed out the weak side of studying in this field at present, and prospected the main research directions in the future. Studies showed that international scholars generally paid close attention to the research of urbanization and eco-environment reciprocation relation, and thought much of the research of urbanization and eco-environment reciprocation mechanism in arid area. They generally adopted “3S” technology and quantitative analytical method to appraise the response course of urbanization and eco-environment respectively, and strengthened to research the sustainable developmental modes of urbanization and eco-environment in arid area progressively. Domestic scholars mainly studied on the phenomena of water deficiency and ecological degradation, the interactional mechanism between urbanization and eco-environment, the quantitative analysis models and the urbanization development modes in arid area. Although a series of theories to study the relation of urbanization and environment have emerged recently, there are a lot of weak points which should bring our attention in. For example the researches of urbanization or eco-environment solely were more, but the researches combining them together were less; the empirical researches were more, but the law summarization researches were less; and the researches of coercing effects were more, but the researches of restraint effects were less. So, an independent and integrated theoretical system of urbanization and eco-environment research in arid area has not formed yet. In the future, the multi-disciplinary merges, the close integration with practice and the application of new technical method and the dynamic simulation will be the main research directions.