A soil physics theory of solute movement through a drained saturated zone underlying agricultural land is introduced into a long‐term economic analysis of farm‐level irrigation management; this is an alternative to the immediate, homogeneous blending assumption employed in previous studies as a base for calculating changes in drainage salinity over time. Using data from California, the effect of drainage salinity evolution is analyzed through a year‐by‐year profit optimization under the requirement of on‐farm drainage disposal. Paths of optimal land allocation among crop production with fresh surface water, saline drainage reuse and evaporation ponds appear to depend on the relative profitability of the first two; that of reuse is affected by the trend of drainage salinity. Tile spacing and environmental regulations associated with evaporation ponds affect the timing of evaporation pond construction. The system converges into a solution involving both drainage‐disposal activities; this solution includes an outlet for salts and is therefore sustainable. Following this strategy, the system is asymptotically approaching a steady state that possesses both hydrological and salt balances. Economic implications associated with land retirement programs in California are discussed.