Freshwater is a limited and dwindling global resource; therefore, efficient water use is required for food crops that have high water demands, such as rice, or for the production of sustainable energy biomass. We show here that expression of the Arabidopsis HARDY (HRD) gene in rice improves water use efficiency, the ratio of biomass produced to the water used, by enhancing photosynthetic assimilation and reducing transpiration. These drought-tolerant, low-water-consuming rice plants exhibit increased shoot biomass under well irrigated conditions and an adaptive increase in root biomass under drought stress. The HRD gene, an AP2/ERF-like transcription factor, identified by a gain-of-function Arabidopsis mutant hrd-D having roots with enhanced strength, branching, and cortical cells, exhibits drought resistance and salt tolerance, accompanied by an enhancement in the expression of abiotic stress associated genes. HRD overexpression in Arabidopsis produces thicker leaves with more chloroplast-bearing mesophyll cells, and in rice, there is an increase in leaf biomass and bundle sheath cells that probably contributes to the enhanced photosynthesis assimilation and efficiency. The results exemplify application of a gene identified from the model plant Arabidopsis for the improvement of water use efficiency coincident with drought resistance in the crop plant rice.