Reducing water inputs, by maintaining grain yield quality, is important for sustainable production of rice. This study was conducted to investigate the influence of different water management techniques on milling recovery, grain quality, and mercury uptake in rice under dry direct-seeded and transplanted production systems. Two aromatic rice cultivars (Basmati-515 and Chenab Basmati) were planted in conventional puddled-transplanted rice (TPR) and dry direct-seeded rice (DDSR). Three irrigation management systems, based on soil moisture tension (SMT), continuous flooding (> −10 kPa SMT), alternate wetting and drying (AWD) (−20 kPa SMT) and aerobic rice (−40 kPa SMT) were maintained. Rice planting in DDSR system performed comparable to TPR, however, percentage of broken rice, chalky kernels, abortive kernels and opaque kernels were higher (5–8 %, 20 %, 19 % and 25 %, respectively) under DDSR system. However, kernel amylopectin contents and mercury uptake were reduced by 9% and 11 % under DDSR system. In AWD irrigation management, substantial increase in brown head rice (11 %), white head rice (15 %) and kernel protein contents (11 %) were recorded as compared to aerobic irrigation management. However, AWD irrigation reduced the kernel chalkiness (42 %), abortive kernels (51 %) and opaque kernels (62 %) as compared to aerobic irrigation management. Moreover, the AWD irrigation threshold also reduced the kernel amylose contents (15 %), amylopectin contents (6%) and mercury uptake (21 %) in comparison to continuous flooded irrigation threshold. In conclusion, AWD improved the milling recovery as well as grain quality and reduced the mercury uptake under TPR and DDSR in both rice cultivars. Rice cultivation under DDSR in combination with AWD can help to improve the quality traits while reducing the total water inputs and heavy metal accumulation.