Using a comprehensive data set collected through field survey of 950 farmers across Pakistan, the current study evaluates water-management practices and their impact on food security and poverty. The results show that rural households mainly adopted four water-management practices (bund making, deep plowing, the adoption of stress-tolerant varieties, and irrigation supplements) and that the wealth, education, and gender of the farmer (male) positively influences the adoption of improved water-management practices. The propensity score matching approach shows that the adoption of improved water-management practices improves wheat and rice yields, household income and food security levels, and reduces poverty levels. The food security levels of households adopting improved water-management practices are higher: in the range of 3–12%. Higher wheat yields are in the range of 26.8–70.4 kg/acre and higher rice yields are in the range of 48.4–85.2 kg/acre. Higher household income levels are in the range of rupees 2,573–4,926 and the lower poverty levels are in the range of 2–7%. Hence, agricultural policy should promote improved water-management practices among rural households.