In view of the problems such as strong subjectivity and insufficient rationality in determination of water demand according to the empirical adjustment coefficient in calculation of the drought-limited water level in dry periods, this paper proposes a reservoir drought-limited water level optimization method based on the principle of wide and shallow damage, to optimize water demand of different users with the aim of minimum mean monthly water shortage ratio and its standard deviation in dry years. Taking the Fenhe Reservoir and the Fenhe-II Reservoir as examples, optimization effect analysis was carried out to verify the rationality and feasibility of the method. The results show that the mean monthly water shortage ratio and its standard deviation in dry years can be reduced by using the optimized drought-limited water level to guide reservoir operation. Taking 50% as the threshold for severe water shortage ratio, the optimized drought-limited water level can effectively reduce the number of months with severe water shortage. In consecutive dry years, the reservoir scheduling effect under the control of the optimized drought-limited water level is significantly improved, compared with that under the control of the non-optimized drought-limited water level, and the optimized drought-limited water level can reduce the frequency of severe water shortage, meeting the requirements for wide and shallow damage in dry years. The setting of the drought-limited water level can ensure water safety of various users in dry years, reduce the occurrence of extreme water shortage, and provide a basis for drought prevention command and decision-making.