Lack of soil moisture and phosphorus deficiency limits wheat grain yield in dryland areas. However, the moisture-conserving effect of straw mulching combined with phosphor fertilization on fertile florets per spike (FFS) and grain yield remains unclear. During the 2020–2021 and 2021–2022 growing seasons, we investigated the combined effects of straw mulching (0 and 8000 kg ha−1) and phosphorus fertilization (0, 75, and 120 kg P2O5 ha−1) on spike development, assimilates’ availability, and the photosynthetic properties of flag leaves by conducting a field experiment. Compared with no straw mulch control, straw mulching increased fertile spike, grain number per spike (15.6%), and grain yield (22.6%), and grain number per spike was the most important contribution to increasing wheat grain yield (46%). An increase in grain number per spike is associated with FFS. Compared with no straw mulch control, straw mulching increased FFS by 19.5%, and it increased with increasing phosphorus fertilization levels. Moreover, straw mulching combined with phosphorus fertilization promoted the light compensation point (LCP), light saturation point (LSP), net photosynthetic rate (Pn), Chl b, and the maximal photochemical efficiency of photosystem II (Fv/Fm) of flag leaves to produce carbohydrates. Our study has shown that the primary factor for the divergence in FFS under straw mulching and phosphorus application was the efficiency of assimilate utilization in the spike, which ultimately led to increased grain number per spike and grain yield.