Drought stress is known to diminish the growth and yield of plants by altering the physiological, biochemical and molecular processes, thus threatening food security worldwide. Nanoparticles (NPs) have emerged as an effective strategy to raise plant productivity under current rapid environmental challenges. However, there is little literature on mechanisms underlying the beneficial role of re-watering in drought-stressed plants treated with NPs. In this study, the effects of cerium dioxide nanoparticles [(CeO2 NPs), 0 (control), 125, 250, 500, and 1000 mL L−1] were investigated on morpho-physiological and phytochemical traits of Salvia mirzayanii plants under different drought stress intensities [(25%, 50%, 75%, and 100% (control) of field capacity (FC) moisture] and post-stress re-watering (recovery) in a three-way factorial arrangement based on randomized complete block design. Uptake and accumulation of CeO2 NPs in the leaf tissue of plant samples were confirmed using SEM and EDX techniques. The results of ANOVA demonstrated that growth and physio-phytochemical traits were significantly (p < 0.05) affected by individual treatment and/or their double and triple interactions. Exposure to various levels of CeO2 NPs during drought stress mitigated the adverse effects of stress on growth parameters (e.g., plant height, shoot and root dry weights, and root length) and photosynthetic pigments (chlorophyll a and b) content compared to the respective controls in varying degrees. However, proline and essential oil content were increased in drought-stressed plants, and tended to decrease during the period of recovery. Before re-watering, the antioxidant enzymes, CAT, POD, and SOD, activity in leaf tissues was increased with the increase of drought stress intensity upon both treated and non-treated CeO2 NPs conditions. However, the three-way interaction results demonstrated that recovery after drought stress following CeO2 NPs application particularly 1000 mL L−1 decreased the activity of antioxidant enzymes compared to the controls. Based on GC and GC-MS analysis, all essential oil samples predominantly composed of oxygenated monoterpenes and sesquiterpenes including Decane, Spathulenol, Octane, α-Terpinyl acetate, Hexyl isovalerate, Dodecane, Butanoic acid, Linalool, δ-Cadinene, Muurolol, α-Cadinol, Eudesm-7(11)-en-4-ol, which significantly (p < 0.05) changed under different experimental treatments. The recovery after stress, however, increased only the content of δ-Cadinene in plants from severe drought stress upon foliar application of 1000 mL L−1 CeO2 NPs compared to the non-recovery period. Conclusively, integrative use of CeO2 NPs and re-watering after drought stress could be an encouraging and eco-friendly strategy to improve both drought tolerance, growth and pyhtochemical contents in S. mirzayanii plants.