With a population of more than 150 million, Pakistan cannot meet its need for food, if adequate water is not available for crop production. Per capita water availability has decreased from 5600 m3 in 1947 to 1000 m3 in 2004. Water table has gone down by more than 7 m in most parts of the country. Present need is to identify and adopt measures, that will reduce water use and increase crop production. This study was conducted in farmers’ fields during 2002–2004 to evaluate the water use efficiency and economic viability of sprinkler irrigation system for growing rice and wheat crops. Yields and water use were also measured on adjacent fields irrigated by basin flooding, which were planted with the same crop varieties. Sprinkler irrigation of rice produced 18% more yield, while reducing consumption of water to 35% of that used in the traditional irrigation system. Sprinkler irrigation of wheat resulted in a water use efficiency of 5.21 kg of grain per cubic meter of water used compared to 1.38 kg/m3 in the adjacent flooded basins. Benefit–cost analysis showed that adoption of rain-gun sprinkler irrigation for rice and wheat is a financially viable option for farmers. While these findings show large potentials for improving water use efficiency in crop production they also indicate that a large portion of the water applied in traditional flooded basin irrigation is going to groundwater recharge, which has high value near large cities which draw their water from the aquifer.