Agricultural crops play an important role in the global carbon and water cycle. Global climate change scenarios predict enhanced water scarcity and altered precipitation pattern in many parts of the world. Hence, a mechanistic understanding of water fluxes, productivity and water use efficiency of cultivated crops is of major importance, i.e. to adapt management practices. We compared water and carbon fluxes of paddy and rainfed rice by canopy scale gas exchange measurements, crop growth, daily evapotranspiration, transpiration and carbon flux modeling. Throughout a monsoon rice growing season, soil evaporation in paddy rice contributed strongly to evapotranspiration (96.6% to 43.3% from initial growth to fully developed canopy and amounted to 57.9% of total water losses over the growing seasons. Evaporation of rainfed rice was significantly lower (by 65% on average) particularly before canopy closure. Water use efficiency (WUE) was significantly higher in rainfed rice both from an agronomic (WUEagro, i.e. grain yield per evapotranspiration) and ecosystem (WUEeco, i.e. gross primary production per evapotranspiration) perspective. However, our results also show that higher WUE in rainfed rice comes at the expense of higher respiration losses compared to paddy rice (26% higher on average). Hence, suggestions on water management depend on the regional water availability (i.e. Mediterranean vs. Monsoon climate) and the balance between higher respiratory losses versus a potential reduction in CH4 and other greenhouse gas emissions. Our results suggest that a shift from rainfed/unsaturated soil to waterlogged paddy conditions after closure of the rice canopy might be a good compromise towards a sustainable use of water while preserving grain yield, particularly for water-limited production areas.