Rice production in Tanzania, with 67% of its territory considered semi-dry and having average annual rainfall of 300 mm, must be increased to feed an ever-growing population. Water for irrigation and low soil fertility are among the main challenges. One way to decrease water consumption in paddy fields is to change the irrigation regime for rice production, replacing continuous flooding with alternate wetting and drying. In order to assess the impact of different irrigation regimes and nitrogen fertilizer applications on growth, yield, and water productivity of rice, a greenhouse pot experiment with soil from lowland rice ecology was conducted at Sokoine University of Agriculture, Tanzania during the 2019 cropping season. The experiment was split-plot based on randomized complete block design with 12 treatments and 3 replications. Water regimes were the main factors comparing continuous flooding (CF) and alternate wetting and drying (AWD) with nitrogen fertilizer levels as the subfactor, comparing absolute control (no fertilizer) with 0 (P and K fertilizers), 60, 90, 120, and 150 kg Nha−1. Alternate wetting and drying (AWD) significantly improved water productivity by 8.3% over CF (p < 0.05). Water productivity (WP) ranged from 0.6 to 1.5 kg of rice per m3 of water. Average water use ranged from 36 to 82 L per season, and water saving was up to 34.3%. Alternate wetting and drying significantly improved yields (p < 0.05) by 13.3%, and the yield ranged from 21.8 to 118.2 g pot−1. The combination of AWD water management and 60 kg N ha−1 nitrogen fertilization application was found to be the optimal management, however there was no significant difference between 60 and 90 kg N ha−1, in which case 60 kg N ha−1 is recommended because it lowers costs and raises net income. Nitrogen levels significantly affected water productivity, water use, and number of irrigations. Nitrogen levels had significant effect (p < 0.05) on plant height, number of tillers, flag leaf area, chlorophyll content, total tillers, number of productive tillers, panicle weight, panicle length, 1000-grain weight, straw yield, grain yield, and grain harvest index. The results showed that less water can be used to produce more crops under alternative wetting and drying irrigation practices. The results are important for water-scarce areas, providing useful information to policy makers, farmers, agricultural departments, and water management boards in devising future climate-smart adaptation and mitigation strategies.