We report that phytochrome B (phyB) mutants exhibit improved drought tolerance compared to wild type (WT) rice (Oryza sativa L. cv. Nipponbare). To understand the underlying mechanism by which phyB regulates drought tolerance, we analyzed root growth and water loss from the leaves of phyB mutants. The root system showed no significant difference between the phyB mutants and WT, suggesting that improved drought tolerance has little relation to root growth. However, phyB mutants exhibited reduced total leaf area per plant, which was probably due to a reduction in the total number of cells per leaf caused by enhanced expression of Orysa;KRP1 and Orysa;KRP4 (encoding inhibitors of cyclin-dependent kinase complex activity) in the phyB mutants. In addition, the developed leaves of phyB mutants displayed larger epidermal cells than WT leaves, resulting in reduced stomatal density. phyB deficiency promoted the expression of both putative ERECTA family genes and EXPANSIN family genes involved in cell expansion in leaves, thus causing greater epidermal cell expansion in the phyB mutants. Reduced stomatal density resulted in reduced transpiration per unit leaf area in the phyB mutants. Considering all these findings, we propose that phyB deficiency causes both reduced total leaf area and reduced transpiration per unit leaf area, which explains the reduced water loss and improved drought tolerance of phyB mutants.