Heavy metals (HMs) and drought stress are worldwide issues of concern because of their adverse effects on the growth and productivity of rice. Straw burning causes air pollution via greenhouse gas (GHG) emissions and it requires sustainable management. The introduction of HMs into the food chain poses a major health risk to humans. In this regard, straw incorporation into the soil could reduce air pollution and drought stress. However, its simultaneous impact on HMs’ uptake and drought stress tolerance in crops is unknown. Therefore, the present study aimed to investigate the impact of rice straw incorporation in soil on HMs (Cd, Cu, Pb, and Fe) availability, accumulation, and drought stress tolerance in rice (Oryza sativa L.) grown in pots under glasshouse conditions. The soil samples were collected from a non-contaminated agricultural field (control) and the contaminated field, irrigated with industrial effluent and treated with straw. Straw (1% w/w) was mixed in soils and control plants without straw application were grown under both contaminated and normal soil conditions. The results showed that straw incorporation in soils significantly enhanced the accumulation of HMs in rice grain and other vegetative parts of rice as compared to control. Moreover, straw application harmed chlorophyll and carotenoids. Straw application significantly increased proline in leaves (274.0 µg mL−1) as compared to the control (166.8 µg mL−1). Relative water contents were higher in straw-treated plants, thereby increasing drought stress tolerance. Straw application increased the accumulation of HMs and consequently reduced the biomass of the plant. In conclusion, straw incorporation enhanced drought stress tolerance but simultaneously elevated the accumulation of HMs under contaminated soil in Oryza sativa L.