Global warming and declining water resources are threatening the sustainability of rice production and global food security. Conventional continuously flooded system (CF) of rice production is a major contributor to rice production but it requires a huge amount of water input and poses a severe threat to the ecosystem due to emission of greenhouse gases (GHGs) and accumulation of heavy metals [e.g., arsenic (As) and mercury (Hg)] in the rice grains. The declining soil health, increasing micronutrient deficiencies, and declining organic matter are are also threatening the long term sustainability of the conventional rice production system. In this scenario, alternate wetting and drying (AWD) irrigation system is a promising, water-saving, economically viable, and ecofriendly alternative to CF. In this review, we discuss the influence of AWD on nutrient dynamics, rice growth, and yield formation, grain quality, water use efficiency, emission of GHGs, and economics in comparison with the CF rice production system. Overall, AWD irrigation technique can reduce the total water inputs (25–70 %), CH4 emission (11–95 %), As (13–90 %), and Hg (5–90 %) in rice grains while maintaining similar or better paddy yield (10−20%) than the CF depending upon weather conditions, soil type, degree of dryness, crop duration and crop growth stage. The mild-AWD improves the rice grain quality by reducing the kernel chalkiness (40 %) and increasing the head rice recovery (6%) and concentration of grain micronutrients (like zinc). Being economically viable and environment friendly, AWD system is being adopted in all major rice producing regions but not widely, possibly due to complicated inter-relations of agricultural and socioeconomic systems, and lack of institutional support.