Drought is a critical abiotic stress that affects rice yield. There is typically a limited and irregular pattern of rainfall in mid-hill regions, which leads to drought conditions that significantly impact rice production. Therefore, our study aimed to identify the best-performing landraces of rice and determine suitable drought indices. For these, 17 different rice landraces grown in the mid-hills were selected. A two-factorial (genotype and moisture stress) completely randomized design with two replications was carried out at the Lamjung Campus in the spring of 2023. Drought stress resulted in a wide range of yield reductions, from 10–69%. Our findings revealed significant differences in the agro morphological traits of rice. A strong and positive correlation was found between grain yield and drought indices, tolerance indices (TOLs), mean productivity indices (MPs), geometric mean productivity (GMP), harmonic means (HMs), yield indices (YIs), and stress tolerance indices (STIs) under various drought stress conditions. Among these indices, the Juhari landrace performed well in terms of MP, GMP, STI, HM, and YI. Principal component analysis (PCA) clustered drought indices into two groups (PC1 and PC2). Of these, PC2 was found to be better because of its high yield potential. Further screening using the ranking method and cluster analysis identified Juhari, Kathe, Manamure, and Pahele as high-quality drought-tolerant genotypes. Based on our findings, we recommend cultivating Juhari in drought-prone regions within the mid-hill region. In conclusion, our study highlights the importance of indices such as the MPI, STI, GMP, HM, and YI as important instruments for drought screening. Our study highlighted the importance of choosing suitable drought-tolerant landraces that exhibit improved yield and stability under adverse conditions.