Water availability is a major factor that limits grain yield in the Loess Plateau of China. As competition for water intensifies between the agricultural and industrial sectors, it is essential to improve the agricultural water use efficiency (WUE) in the region. This requires the development of alternative irrigation schedules that maximize WUE. A field experiment was conducted for winter wheat (Triticum aestivum L.) during the period 1995–1998 to calibrate and test a biophysically based model WAVES in terms of grain yield and WUE predicitions. Different irrigation treatments were carried out and the data collected included water and energy balance components, biomass and grain yield. The model was run for 3 years with the measured meteorological data and grain yield was modeled using two different formulations. Comparisons between the measurements and the model predictions were made with 3 years of independently measured data. The results showed that the simulated grain yield and WUE based on biomass and harvest index are in better agreement with the measurements than those based on transpiration and harvest index. The model is sensitive to different irrigation treatments, and in reasonable agreement with field measured data. Results from both the field experiments and model simulation showed that evapotranspiration was greatest in the highest irrigation treatment, but the grain yield was not the highest and WUE was relatively low. Appropriately limited irrigation could improve the grain yield and WUE. Therefore, the WAVES model can be used to simulate grain yield and WUE of winter wheat in the Loess Plateau. A better irrigation scheme should aim for maximum WUE and any attempts to solely increase grain yield in the region would not be sustainable.