Gully agricultural land and water resource (GALWR) sustainable utilization in China’s Loess Plateau is vital to the evolution law of human-earth relationship and agricultural multi-functional transformation in the context of green high-quality development. However, characteristics and pattern of GALWR and optimization strategy is still unclear. Here we evaluated the carrying capacity of GALWR in the loess hilly and gully region (LHGR) based on the matter element model. We further investigated driving factors for GALWR sustainable utilization and optimization strategy of the dual guidance of economy and society as well as resources and ecology. The results showed that: (1) The distribution of cultivated land in the LHGR showed strong differences between districts and counties, with more distribution in the middle and less distribution on both sides. The matching degree of GALWR was low, and the elastic sensitivity analysis showed that the per capita water resources, the proportion of primary production, the drought index and the vegetation coverage were the sensitive factors affecting the sustainable utilization of GALWR in the LHGR. (2) There were obvious differences in the coupling and coordination of agricultural GALWR in the LHGR in 2020, and the whole was in the antagonistic coupling stage. (3) There was a lack of synchronization between GALWR utilization. Water resources lagging areas should take water resources adaptive management and the multi-element coupling process of “water-land-climate-crop” to protect gullies, rivers, forests, farmlands and lakes in a coordinated way. Land resources utilization lagging areas should actively explore the main function-oriented zoning, dominant type classification and principal purpose classification optimal strategy of gully land resources in combination with land engineering control measures. This study provides a guideline for the transformation of agriculture and the construction of a new pattern of high-quality agricultural development in the Loess Plateau.