Aiming to investigate the effects of reduced nitrogen fertilizer with topdressing on growth and osmoregulatory substances in peanut under mulched drip irrigation, a split-plot experiment was conducted at the Aerxiang Irrigation Experimental Station in Liaoning Province from May to October in 2023 and 2024. The effects of different nitrogen application modes (N0, no nitrogen; N1, 25% nitrogen reduction with single application; SN1, 25% nitrogen reduction with three times application; and N2, conventional nitrogen rate with single application) on main stem height, root morphology, osmoregulatory substances, yield, and water use efficiency of peanuts under mulched drip irrigation (I_MDI) and drip irrigation (I_CK) were analyzed. Results indicated that in 2023 and 2024, the I_MDI treatment consistently exhibited greater main stem height than I_CK treatment across all nitrogen modes. SN1 obtained the highest main stem height, and followed by N2 and N1, N0 had the lowest main stem height. During the flowering and pod setting stage, the I_MDISN1 treatment achieved the optimal root morphology. In 2023, at the flowering stage, compared with I_MDIN1 and I_MDIN2 treatments, the I_MDISN1 treatment increased root length by 43.9% and 36.6%, respectively. In 2024, at the flowering stage, compared with the I_MDIN1 and I_MDIN2 treatments, the I_MDISN1 treatment enhanced root surface area by 52.2% and 17.3%, and root volume by 49.5% and 25.0%, respectively. Compared with the I_CKN2 treatment, the I_MDISN1 treatment increased root length and root volume by 41.8% and 45.5%, respectively. Under drought stress, SN1 treatment had the highest proline content, and followed by N1 and N2 treatment, the N0 treatment had the lowest proline content. During the pod setting stage in 2024, compared with the I_MDIN1 and I_MDIN2 treatments, the I_MDISN1 treatment increased proline content by 18.1% and 34.8%, respectively. During the pod setting stage in 2024, the N2 treatment had the highest soluble protein content and followed by the SN1 and N1 treatment, the N0 treatment had the lowest soluble protein content, the I_MDIN2 treatment had 27.4% and 40.6% higher soluble protein content than the I_MDISN1 and I_MDIN1 treatments, respectively. During the flowering stage in 2024, the SN1 treatment obtained the highest soluble sugar content, and followed by the N1 and N2 treatment, the N0 treatment had the lowest soluble sugar content, compared with the I_MDIN1 and I_MDIN2 treatments, the I_MDISN1 treatment increased soluble sugar content by 30.3% and 40.0%, respectively. The I_MDI treatment had higher peanut yield than the I_CK treatment, but the I_MDISN1 treatment had similar peanut yield with I_CKN2 treatment. Compared with the I_CKN2 treatment, the I_MDISN1 treatment increased water use efficiency by 32.3% (2023) and 41.1% (2024), respectively. Thus, reducing nitrogen rate by 25% with three split applications under mulched drip irrigation (I_MDISN1) could improve water and nitrogen utilization, enhance osmoregulation during the critical water requirement stages, and ultimately promote peanut yield. These findings could provide theoretical basis for water-saving and nitrogen reduction in peanut production in sandy regions.