Water is a key restricting factor of the economic development and eco-environmental protection in arid inland river basins of Northwest China. Although water supplies are short, the water utilization structure and the corresponding industrial structure are unbalanced. We constructed a System Dynamic Model for mutual optimization based on the mechanism of their interaction. This model is applied to the Heihe River Basin where the share of limited water resources among ecosystem, production and human living is optimized. Results show that, by mutual optimization, the water utilization structure and the industrial structures fit in with each other. And the relationships between the upper, middle and lower reaches of the Heihe River Basin can be harmonized. Mutual benefits of ecology, society and economy can be reached, and a sustainable ecology-production-living system can be obtained. This study gives a new insight and method for the sustainable utilization of water resources in arid inland river basins.