The Jammu district of the Indian subcontinent has sandy soil that has low water retention, leading to low agricultural produce. This region is also the largest producer and supplier of walnuts, where walnut shells tend to become local agro-industrial waste. The current study deals with the thermochemical treatment of walnut shells using three different atmospheres, i.e., limited oxygen, nitrogen, and vacuum. The walnut shell biochars were tested for water retention capacity and hydraulic conductivity. All the synthesized biochars were then chemically treated with acid or base to increase their water retention capacity. Surface analysis was done using SEM and FTIR and suggested surface modification and hydrophilic functionalization. The highest water retention capacity was observed in untreated biochar synthesized under limited oxygen atmosphere and sodium carbonate treated biochar synthesized under nitrogen and vacuum environments. The increase in water retention can be associated with hydrophilic functionalization and microstructure of the biochar surface, modified by chemical treatment, supported by contact angle measurements. Incorporation of biochar with soil (locally sourced) shows an enhancement in water retention capacity and lowering of hydraulic conductivity. The highest enhancement for water retention was observed to be 11% for the biochar−soil mixture (5%) using sodium carbonate treated vacuum biochar as compared to the control.