Due to rapid population growth, water scarcity and food insecurity have become the major problems for Pakistan. Therefore, the efficient utilization of limited resources such as water is very important in agriculture. Paddy or rice—Pakistan’s second most important cereal and staple crop—is a water-intensive crop. The present study aims to estimate the water use efficiency, profitability, and consumer preferences of different paddy varieties such as basmati, coarse and hybrid rice in Punjab. To this end, we collected field survey data from 330 rice growers in six districts of the rice–wheat zone of Punjab. The results showed that basmati rice is more profitable due to low production cost and higher prices. Although the number of irrigations applied to basmati rice and coarse rice was higher than that of hybrid rice, the amount of water applied to hybrid rice was the highest. Therefore, the total irrigation cost of hybrid rice is higher, while the coarse rice has higher water productivity. Furthermore, the economic productivity of water applied to basmati rice and coarse rice is higher than that of hybrid rice. Consumer preferences based on data from 150 consumers indicate that basmati rice is a favorite of consumers and that hybrid rice is the least popular. These results imply that it is better to grow basmati or coarse rice than hybrid rice due to water shortages in Pakistan. Another approach is to replace these varieties with alternative crops such as corn and soybeans that require less water.