Paclobutrazol (PBZ) was reported to increase grain yield of different rice ecotypes via improved tillering ability under rainfed condition. In this study, the effects of PBZ on the shoot and root growth, and water use that might have contributed to higher yield under water-limited conditions were further examined. PSB Rc14 and NSIC Rc222 were grown in pots and subjected to continuously waterlogged (CWL) and drought (DR) treatments with soil moisture content maintained at 20% from 14 days after transplanting (DAT) until maturity. PBZ concentrations (0, 250 and 500 ppm) were sprayed at the onset of water treatments (14 DAT). Results showed that drought treatment significantly altered most of the parameters indicating successful imposition of the stress with the two varieties showing almost similar responses under the two water regimes, especially during maturity. PBZ application in CWL improved tiller number and yield components at a lower concentration and consequently increased grain yield. In drought, PBZ improved tiller number (34-39) starting at 35 DAT which contributed to a higher panicle number at maturity. Additionally, PBZ did not affect the shoot and root growth but reduced water use. Furthermore, the panicle number increased which could be linked to more grain numbers per plant leading to higher grain yields. These higher grain yield and lower water use improved water use efficiency, which required higher PBZ concentration (500 ppm). Overall, PBZ improved the panicle number contributing to a higher grain yield while reducing water use, thereby boosting water use efficiency of rice under drought stress condition.