The effect of crop establishment methods involving system of rice intensification and conventional method (SRI and CT) with rice based cropping systems on soil water holding capacity and water use efficiency of the system were studied in a tropical rainfed agro-ecosystem. Changes in soil water holding capacity was measured after 5 years of establishing different soil management strategies. The soil water holding capacity was readily altered and improved under SRI practice with application of organic matter as compared to the conventional system. Practice of SRI increased the WHC of soil from initial value of 37.6 percent to 41.2 percent with concomitant decrease in the WHC of the soil under conventional system (38.5 percent). Water use efficiency (WUE) was higher under SRI method of stand establishment (70.8 kg REY ha-cm-1) than the than CT (67.0 kg REY ha-cm-1). The use of single young seedlings, reduced plant densities, use of mechanical weederand alternate wetting and drying in SRI method of rice establishment helps in soil aeration, enhanced organic matter, improved soil physico-chemical and biological properties of the soil leading to higher productivity of succeeding crops in a sequence.