To cope with scarce water supply, deficit irrigation is an important tool to achieve the goal of reducing irrigation water use and increasing water use efficiency (WUE) under scarce water resources. This experiment was conducted for the last three years (2018-2020)in Chano Mille Kebelle near Arba Minch to examine the level of deficit irrigation which allows the maximum yield of onion, WUE and economic return without significantly reducing the yield of onion. Randomized Complete Block Design was used to run the experiment with four Replications. The experiment comprised different levels of deficit irrigation treatment: 100% of ETc, 85% of ETc, 75% of ETc and 50% of ETc. Analysis of variance showed that there was a significant difference among treatments in terms of marketable yield,total yield, and WUE in three consecutive years. 100% of ETc gave the maximum marketable and total yield and WUE which was followed by 85% of ETc. Additionally, the combined analysis of the mean showed that the highest marketable yield 24.97ton ha-1 and a total yield of 28.63 ton ha-1 was observed from100% of ETc and followed by 22.13 ton ha-1of marketable yield and 26.86 ton ha-1of total yield from 85% of Etc without significant variation. The highestcombined WUE of 4.445kg m-3 resulted from 50% of ETc compared to the other levels of deficit irrigation (3.12 kg m-3 , 3.02 kg m-3, 4.27 kg m-3) from 100%, 85% and 70%, respectively. Given economic return, 100% of ETc yielded the highest net benefit of 208008 Birr/ha and followed by 198558 Birr/ha observed from 85% of ETc without significant economic return. The minimum (123858 Birr/ha gained from 50% of ETc. Based on these findings, 85% of ETc of deficit irrigation under moisture stress areas of Arba Minch should be applied to save water, and increase economic return and command area.