Global concerns of decreasing water availability and food security are being exacerbated by the increasing demand for food, water quality degradation, and climate change impacts. Rice is an essential crop for food security with paddy rice cultivation largely practiced using traditional flooding conditions. Water regimes and components of the soil water balance in paddy rice catchments affect uptake of water by rice roots. Paddy management, especially puddling, significantly affects soil hydrological properties, such as hydraulic conductivity, percolation, and seepage in the paddy rhizosphere. Improved knowledge of these interactions is vital for developing sustainable water management strategies in paddy fields. Alternate Wetting and Drying (AWD) practice contributes to sustainable water management, but little is known about effects of soil wetting and drying duration on gravitational soil water flow, moisture dynamics, and hydraulic conductivity in the rice paddy rhizosphere. These factors depend on soil type, rice variety, rooting conditions, and environmental factors, such as solar radiation and temperature. Here we examine the paddy cultivation environment and soil properties under traditional continuous flooding and AWD practice. Some studies indicate that the duration and frequency of wetting and soil drying under AWD practice in paddy fields affects soil hydraulic conductivity that alters the next cycle of water application. During droughts and short rainy seasons, rainfall, soil properties, and atmospheric conditions control soil moisture dynamics in paddy fields. Limitations and challenges of applying AWD in paddy soils, including the variation of hydrological properties and the need for frequent field manual monitoring of water level (WL) head, are discussed. Implications of AWD practice on yield, water use efficiency, soil hydrology, and reduction of methane emissions, are outlined along with opportunities to improve AWD integration within government policies, irrigation schemes, and adoption by farmers. Coupled crop models can provide important insights for sustainable agricultural water management.