Aerobic rice is considered a viable agro-technology to cope with the looming crisis of water supply that threatens the sustainability of irrigated rice production systems. Rice adapted to aerobic conditions requires less water than that grown under conventional irrigation management. A field study was conducted at Cuttack, India, during the dry season (January–May) in 2005 and 2006 to determine the critical soil moisture regime at the root-zone depth (30 cm) for sustaining optimum growth and grain yield of aerobic rice variety ‘Apo’ (IR 55423-01). Irrigation at 0, 20 and 40 kPa soil moisture tension resulted in similar grain yields (4.90–5.25 t ha−1 in 2005 and 4.35–4.50 t ha−1 in 2006). The seasonal water requirement in treatments receiving irrigation at 20, 40 and 60 kPa soil moisture tensions was 28.4, 42.8 and 60.7% lower than that at 0 kPa soil moisture tension, but the yield declined significantly at 60 kPa, i.e. by 42.8% in 2005 and 36.7% in 2006. Irrigation at 40 kPa soil moisture tension ensured maximum water productivity of 0.90, 0.47 and 0.53 g grain kg−1 water with respect to evapotranspiration, irrigation plus rainfall and irrigation alone, respectively. Thus, irrigation at 40 kPa soil moisture tension may be considered critical for optimum grain yield and maximum water productivity of aerobic rice in Indian cultivation conditions.