Abstract: Mingsha mountain and Yueyaquan lake in the city of Dunhuang are famous for their wonderful landscapes of “coexistence of mountains and springs, symbiosis of sand and water”. They are known as “one of the most beautiful scenery outside the Great Wall” and are famous scenic spots in Gansu province. However, since the mid–1970s, due to the construction of the Danghe reservoir, the river was cut off, the groundwater replenishment was reduced, and the regional groundwater level dropped, causing the water level of the Yueyaquan lake to drop sharply and the bottom of the spring lake had repeatedly partially exposed to the surface of the water, causing the deterioration of the surrounding geological environment, seriously affecting the development of Dunhuang’s tourism industry, and causing widespread concern in the society. Since 1986, relevant departments have implemented multiple rescue measures on Yueyaquan lake. This paper describes the hydrogeological conditions of Yueyaquan lake, the causes of water level decline and the treatment process, FEFLOW software is used to simulate, analyze and predict the different treatment scenarios of the Yueyaquan Lake, changes in water level and area of the Lake. After the implementation of the Yueyaquan lake treatment project in April 2018, the water surface of the Yueyaquan lake has gradually risen and expanded, with good results. The successful experience in the treatment of the decline in the water level of the Yueyaquan lake has a typical demonstration and promotion value for environmental treatment and restoration in the arid area of Northwest China.