China’s Loess Plateau is the largest loess deposit in the world in terms of both depth and area. Water storage in soils of the Plateau has direct impacts on food security, human health and ecosystem function. Despite extensive research on the behavior and function of soil water in the Plateau, there is no state-of-the-art review that presents research achievements, gaps and future perspectives. This paper reviews the advances in soil water research and highlights future research needs and challenges in the Loess Plateau, and thereby provides informed decision on sustainable water management. We report that considerable efforts have been made to investigate: i) soil water movement and hydraulic property estimation in the typical loess regions; ii) spatial and temporal variations in soil water content and storage at multiple scales; iii) dried soil layers induced by excessive water use from unreasonable artificial revegetation; and iv) soil water availability and water carrying capacity of typical vegetation types on the Loess Plateau. These studies have greatly enhanced our understanding about the fundamental characteristics, spatio-temporal patterns and natural and anthropogenic controls of soil water distribution and water cycles in the Loess Plateau, which in turn have important implications for the regulation and management of water resources toward sustainable ecological construction. Based on the identified key issues and future research priorities, recommendations were drawn to address unsolved problems, including: i) processes and mechanisms controlling water transport and interactions within the groundwater–soil–plant–atmosphere continuum; ii) how soil hydrological processes couple nutrient cycles in response to climate change and human activities; and iii) development of quantitative models across spatial scales for modeling changes in thresholds of soil water carrying capacity for vegetation. The incorporation of research findings into policy and practice can improve soil water management that will in turn significantly benefit the promotion of ecosystem services and functions in the Loess Plateau.