In the Ethiopian Upper Blue Nile Basin, like in other regions in the world, agricultural productivity is declining due to water scarcity owing to longer dry seasons coupled with soil acidity−induced fertility problems. Wheat is one of the major food security crops in Ethiopia but its productivity is reduced due to water scarcity, especially during the irrigation season. Addressing these problems might be essential to increase productivity. This study explores the effect of deficit irrigation (DI) combined with lime, manure and inorganic fertilizer on wheat production and water productivity (WP) in the Koga irrigation scheme, Ethiopia. Four levels of DI strategies (100% ETc or 0% deficit as a control, 80%, 60% and 50% ETc) were applied for two irrigated seasons. Five levels of soil fertility management were applied for four consecutive cropping seasons: (i) 0.86 t ha−1 lime combined with 3 t ha−1 manure and full dose urea and NPS−B (hereafter referred to as inorganic fertilizer) (L3); (ii) 1.15 t ha−1 lime combined with 3 t ha−1 manure and full-dose inorganic fertilizer (L2); (iii) 1.43 t ha−1 lime combined with 3 t ha−1 manure and full dose inorganic fertilizer (L1); (iv) 3 t ha−1 manure combined with full dose inorganic fertilizer (M); and (v) full dose inorganic fertilizer alone (C). The grain yield and biomass data were collected at harvest from a sample area of 2 m × 3 m from each plot with three replicates. The effect of DI and liming, as well as manuring on average grain yield and biomass, were highly significant. Under all irrigation scenarios, higher grain yield and biomass were found at L1, L2, L3 and M (in that order), compared with C. The highest WP was obtained at 50% ETc irrigation dose, compared with 60%, 80% and 100% ETc (in that order). Yet, the lowest WP was found at C under all irrigation scenarios compared with L1, L2, L3 and M. The WP increased when the amount of water supply decreased and liming doses increased. The application of full dose lime and manure combined with 50% ETc DI resulted in comparable grain yield, biomass and WP as 100% ETc full irrigation at L3 and M. It could be concluded that liming and manuring could be used to mitigate the yield penalty effect of DI in the study area. In scenarios where farmers have to pay for water, profitability rises as the irrigation water supply reduces. Thus, under such conditions, a 50% ETc irrigation scenario is more profitable than scenarios with 60%, 80% and 100% ETc irrigation.