Municipal effluent is becoming an increasing environmental threat and needs appropriate disposal measures to safeguard soil and environmental quality. As an important source of water and nutrients, municipal effluent could be used to increase productivity in nutrient deficient dry areas. Acacia nilotica L. (Babool) seedlings were grown using municipal effluent. Five treatments comprised: irrigation of soil (without seedlings) with municipal effluent at potential evapotranspiration (PET) (treatment T1), irrigation of seedlings at 0.5 PET (T2), PET (T3), and 2 PET (T4), and canal water irrigation of seedlings at PET (T5). Seedlings in the T3 and T4 treatments attained greater height and collar diameter, and produced 22% and 54% more biomass than those in T5. After 24 months, biomass production was 7.43–12.96 t ha−1 as compared to 5.73 t ha−1 in T5. Nutrient concentrations in the seedlings were positively correlated with effluent quantity (r = 0.82, p < 0.01), being greater in foliage than in stems and roots. Uptake of nitrogen (N) was 2.70%, and of iron (Fe) 0.11%, of seedling biomass. Relative increase in metal concentration was greater than that in nutrients. The availability of potassium (K), copper (Cu), Fe, manganese (Mn) and zinc (Zn) in the soil increased twofold and that of NH4-N and PO4-P by 4.5- and 7.9-fold, respectively, in T4 relative to T5. Available NH4-N, PO4-P, Mg and K were highest in the 0–15 cm depth soil, whereas NO3-N, Na, Cu, Fe, Mn and Zn availability were highest in deeper soil layers. Relatively low soil nutrients in T3 compared to T1 indicated withdrawal and accumulation of these nutrients in the seedlings. In several respects municipal effluent benefited A. nilotica seedlings and soil properties, and produced 5.59–12.96 t ha−1 dry biomass. Municipal effluent could help to meet the fuel need of suburban areas, although long-term application of effluent would lead to metal accumulation in soil and plants.