[Truncated abstract] In southern Western Australia the replacement of deep-rooted native vegetation with annual species has resulted in rising water tables and increased salinity due to insufficient water use. The area has a Mediterranean-type climate where rainfall during summer is generally low but variable resulting in limited plant growth. However, if rainfall does occur it potentially can contribute to to the increased water excess or drainage by increasing the soil water content before the main drainage period in winter. The first study investigated factors controlling soil water content changes during the fallow (December to May) in annual farming systems. This was achieved by examining variation in available soil water storage to a depth of 1.0-1.5 m at three sites within 13 seasons. Reasons for the variation were examined using the Agricultural Production Systems Simulator (APSIM). This study also investigated the relationship between soil water content at the end of the fallow period (1 May) and the amount of drainage below 2.5 m by using APSIM coupled to historical weather records at three locations. At the end of the fallow a mean of 24 mm (or 25%) of rainfall during the fallow was retained in the soil. Losses of soil water during the fallow were due to evaporation (mean of 60 mm), transpiration from plant cover (mean of 12 mm) and drainage below the root zone and run off (combined mean of 13 mm). Soil water accumulation during the fallow period had a significant impact on simulated drainage under wheat in the following growing season. Every 1 mm increase in soil wetness at the end of the fallow resulted in a 0.7-1 mm increase in simulated drainage during the growing season. ... Variation in the water excess due to variation in rainfall was greater than the reduction in water excess due to lucerne. This makes the decisions about when to grow lucerne to reduce water excess difficult if livestock enterprises are less profitable than cropping enterprises. The findings of this PhD indicate that lucerne does have a place in Mediterranean-type environments because of its greater water use than current farming practices. However, its use needs to be strategic and the strategy will vary from region to region. For example, in the low rainfall region lucerne sowings need to be matched with high soil water contents and phase length will generally be short (2-3 years). In comparison at high rainfall regions lucerne will need to be grown for longer or combined with other strategies to increase water use.