Water deficiency threatens the health and function of wetlands in semi-arid areas. Optimum re-watering is an effective method for close-to-natural restoration to mitigate wetland degradation. Although the ecological importance of optimal re-watering as a nature-based solution for promoting wetland plant growth has been widely recognized, the response mechanisms of seed germination and seedling growth to re-watering are still poorly understood despite their decisive impact on plant life history. To fill this gap, this study compared the characteristics of seed germination and seedling growth in Carex schmidtii under initial water content with three levels (30%, 50%, and 70%) and five re-watering treatments (maintained at constant water content and re-watering to 100% on 7th, 14th, 21st, and 28th day). Moreover, the degree of reserve mobilization during four germination stages (seed suckering, sprouting, 20% germination, and seedling growth) was investigated. The results showed that water deficiency and re-watering treatments significantly affected C. schmidtii seed germination, seedling growth, and reserve mobilization. Compared with the other treatments, 50% moisture content and re-watering to 100% on the 14th day (50%-RT3) treatment significantly improved germination traits (germination rate, daily germination rate, germination index, and vigor index) and seedling growth characteristics (shoot length, root length, shoot biomass, root biomass, and total biomass). Furthermore, the degree of mobilization of starch, soluble protein, fat, and soluble sugar accumulation in C. schmidtii seeds under 50%-RT3 was higher than that in the other treatments. The structural equation model showed that the characteristics of seed germination and seedling growth of C. schmidtii were directly related to water deficiency and re-watering treatments, whereas reserve mobilization indirectly affected seed germination and seedling growth. These findings demonstrated that water deficiency and re-watering treatments have a crucial regulatory effect on seed germination and seedling growth of wetland plant species through a dual mechanism. This study provides information for the formulation of an optimum re-watering strategy for wetland vegetation restoration in semi-arid areas of the world.