Cereal/legume intercropping is an effective agricultural practice for pest and disease control and crop production. However, global research on rice and aquatic legume intercropping is relatively rare. A field experiment during two seasons (2018 late season and 2019 early season) was conducted to explore the effects of rice and water mimosa intercropping on rice canopy microclimate, pest and disease, yield, grain quality, and economic income. Two cultivation patterns including rice/water mimosa intercropping and rice monocropping were employed, and three nitrogen (N) fertilizer application levels, including zero N (ZN, 0 kg ha−1 N), reduced N (RN, 140 kg ha−1 N), and conventional N (CN, 180 kg ha−1 N) levels, were applied for the above two cultivation patterns. The results showed that rice/water mimosa intercropping formed a canopy microclimate of rice with higher temperature and lower relative humidity and dew point temperature. In addition, there was a significant reduction in the occurrences of rice leaf blast by 15.05%~35.49%, leaf folders by 25.32%~43.40%, and sheath blight by 16.35%~41.91% in the intercropping treatments. Moreover, rice/water mimosa intercropping increased rice per unit yield by 43.00%~53.10% in the late season of 2018 and 21.40%~26.18% in the early season of 2019. Furthermore, rice grain quality was totally improved, among which brown and head rice rates increased but rice chalky rate and chalkiness degree decreased in the intercropping system. We suggest that combining rice/water mimosa intercropping and N fertilizer reduction can be used as an environmentally friendly eco-farming technique because it can decrease N fertilizer application by approximately 40 kg·ha−1. This combination would not only mitigate nonpoint source pollution but also obtain advantages for controlling rice pests and diseases that would alleviate pesticide usage and improve rice yield and grain quality, which can be extended for green rice production to increase income for producers.