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Located in the hinterland of the Eurasian continent, the inland areas of northwestern China have an arid climate and are confronted with continuing challenges in water resources quantity and quality. Reclaimed water plays an important role in maintaining the sustainable use of urban water resources, especially in arid regions. In this paper, a system dynamics urban reclaimed water model (SDURWM) considering the status of arid regions in northwestern China was constructed. The supply and demand balance index (RWB) and the utilization efficiency index (RWUE) of reclaimed water were proposed as evaluation indicators. The potential of reclaimed water utilization (2016–2025) in three typical cities with similar natural environments and population sizes but with large economic differences were estimated by the SD model. Then the relevant values of reclaimed water quota, supply and resident awareness were adjusted within the range of 10%–20%. The predicted results from intervention demonstrate that the RWB of three cities will be closer or maintain to the ideal value, and that the RWUE will increase by about 0.1, compared with the non-intervention results. This indicates that a minor change of the targeted policies can invigorate the capacity of reclaimed water use in droughty cities. This paper provides some effective solutions for the government's planning of developing the potential of reclaimed water. • Established a SD model for urban reclaimed water utilization in arid areas. • Proposed RWB and RWUE for evaluating the comprehensive utilization potential of reclaimed water. • Explored targeted measures to improve the utilization of reclaimed water in typical arid cities of northwest China. [ABSTRACT FROM AUTHOR]