The loess in Yili Valley is prone to landslides in the rainy season. We studied the influence law of shrinkage and the microstructure of the loess in Yili Valley under different wetting and drying cycles. Considering the climatic conditions and sampling depth of the study area, shrinkage tests were carried out under six kinds of dry and wet cycling paths. The fracture changes and shrinkage characteristics of the loess under different dry–wet cycling times were analyzed, and the deformation characteristics of the loess during the process of water-loss shrinkage under the dry–wet cycling conditions were discussed. The results show that (1) there is an exponential relationship between the number of dry and wet cycles and the final shrinkage rate. The influence of dry and wet cycles on the final shrinkage rate is significant in the early stage. (2) With the increase in the number of dry and wet cycles, the decline in the final shrinkage rate decreases, and the final shrinkage rate and shrinkage coefficient of soil also show a decreasing trend, while the soil sample area first increases and then gradually decreases, and the surface shrinkage cracking is gradually stable. The surface porosity tends to increase. (3) Under the action of repeated wet expansion and dry contraction, irregular cracks are produced inside the soil body, which leads to the increase in soil permeability, reduces the strength of the soil body, reflects the phenomenon of strength deterioration, and thus indicates the stability of loess slopes. The research results of this paper can provide an important parameter basis for the prevention and control of loess landslide geological disasters in Yili Valley.