A geothermal desiccant cycle cools and dehumidifies the air in an indoor conditioned space. The return air is split into two streams. One of the streams passes through a desiccant wheel to remove water vapor and then through a cooling coil for sensible cooling from geothermal water. The other stream is heated to increase its capacity to absorb moisture, and then is passed through the desiccant wheel to pick up the moisture transferred from the first stream and regenerate the desiccant. The second air stream, which now has a higher dewpoint temperature, flows through a geothermal cooling coil, for sensible cooling as well as condensation of the moisture. The two air streams are mixed and supplied back to the conditioned space. A regenerative air-air heat exchanger can be used to recover some of the heat used in heating the second air stream.