As peanuts are sensitive to salinity, physiological and agronomic responses to mulching and varied potassium rates were explored to boost peanut yield. During 2013–14 and 2014–15, a field study with 12 treatment combinations using three levels of saline irrigation water (control, 2.0 and 4.0 dS m−1) and mulching (Plastic mulch and control) as main plot, and three levels of potassium treatment (control, 30 and 60 kg K2O ha−1) assisted in sub plots. Results revealed that, application of irrigation water at 2.0 and 4.0 dS m−1 salinity exhibited 46.7–133.3% lower nodule count and pod yield reduced by ∼22.5% at successive increase in salinity over best availability water with 0 dS m−1. Salinity levels lowered free amino acids and oil content, but protein and sugar quantities rose modestly. Polythene mulch enhanced peanut pod production, haulm yield, and oil content by 23.9%, 24.6%, and 49.5%, respectively. Potash fertilizer applied at 60 kg ha−1 has a greater impact on pod yield (2.50 Mg ha−1) than lower potassium fertilizer levels. External potassium application didn't affect peanut biochemistry. Adopting polythene mulch with 2.0 dS m−1 salinity level irrigation water increased pod yield by 6.37–116.1%. Polythene mulch + 60 kg K2O ha−1 + 2.0 dS m−1 increased 100 pod weight (88.4 g), root length (8.67 cm), nodules (9.00), and oil content (50.2%) over other combinations. Five principal component analysis (PCA) main components explained 84.4% variation with PC1 explaining 52% and correlating positively with yield related traits, nodule numbers and oil content. Polythene mulch containing 30–60 kg K2O ha−1 increased peanut yield, biochemical parameters, and oil content under similar growing conditions. Therefore, use of polythene mulch with combination of optimum potassium fertilizer application can be effectively used with salinity irrigation water up to 2.0 dS m−1 without compromising in yield and quality loss of peanut.