Hydrogen, as a clean energy carrier, plays an important role in addressing the current energy and environmental crisis. However, conventional hydrogen production technologies require extreme reaction conditions, such as high temperature, high pressure, and catalysts. Herein, we study the microscopic mechanism of laser-induced water plasma and subsequent H2 production with real-time time-dependent density functional theory simulations and ab initio molecular dynamics simulations. The results demonstrate that intense laser excites liquid water to generate nonequilibrium plasma in a warm-dense state, which constitutes a superior reaction environment. Subsequent annealing leads to the recombination of energetic reactive particles to generate H2, O2, and H2O2 molecules. Annealing rate and laser wavelength are shown to modulate the product ratio, and the energy conversion efficiency can reach ∼9.2% with an annealing rate of 1.0 K/fs. This work reveals the nonequilibrium atomistic mechanisms of hydrogen production from laser-induced water plasma and shows far-reaching implications for the design of optically controllable hydrogen technology.