This study creatively uses the Dagum Gini coefficient, Kernel density estimation, and Markov chain to measure the spatial difference and distribution dynamics of urban water-use efficiency in the Yellow River Basin from 2008 to 2018 accurately and also analyzes its formation mechanism by using the Spatial Durbin Model. The results show that the hypervariable density and the intraregional differences constitute the main source of regional differences in the whole basin; the dynamic evolution characteristics of the urban water-use efficiency distribution in different reaches are different. The spatial factors have a non-negligible impact; the urbanization process and population density spatial spillover effects are negative in the state of spatial interaction; the spillover effect of upgrading the industrial structure is positive; the direct and spillover effects of openness are both positive; and the direct effect of the water-use structure is positive. In order to improve the urban water-use efficiency in the Yellow River Basin, it is necessary to comprehensively promote new urbanization, upgrade industrial structures, promote energy conservation and emission reduction, construct business environments, and establish an inter-regional coordination mechanism.