There is a pressing need to improve the water-use efficiency of rain-fed and irrigated crop production. Breeding crop varieties with higher water-use efficiency is seen as providing part of the solution. Three key processes can be exploited in breeding for high water-use efficiency: (i) moving more of the available water through the crop rather than it being wasted as evaporation from the soil surface or drainage beyond the root zone or being left behind in the root zone at harvest; (ii) acquiring more carbon (biomass) in exchange for the water transpired by the crop, i.e. improving crop transpiration efficiency; (iii) partitioning more of the achieved biomass into the harvested product. The relative importance of any one of these processes will vary depending on how water availability varies during the crop cycle. However, these three processes are not independent. Targeting specific traits to improve one process may have detrimental effects on the other two, but there may also be positive interactions. Progress in breeding for improved water-use efficiency of rain-fed wheat is reviewed to illustrate the nature of some of these interactions and to highlight opportunities that may be exploited in other crops as well as potential pitfalls. For C3 species, measuring carbon isotope discrimination provides a powerful means of improving water-use efficiency of leaf gas exchange, but experience has shown that improvements in leaf-level water-use efficiency may not always translate into higher crop water-use efficiency or yield. In fact, the reverse has frequently been observed. Reasons for this are explored in some detail. Crop simulation modelling can be used to assess the likely impact on water-use efficiency and yield of changing the expression of traits of interest. Results of such simulations indicate that greater progress may be achieved by pyramiding traits so that potential negative effects of individual traits are neutralized. DNA-based selection techniques may assist in such a strategy.