Cell wall properties play a major role in determining photosynthetic carbon uptake and water use through their impact on mesophyll conductance (CO2 diffusion from substomatal cavities into photosynthetic mesophyll cells) and leaf hydraulic conductance (water movement from xylem, through leaf tissue, to stomata). Consequently, modification of cell wall properties might help improve photosynthesis and crop water-use efficiency. We tested this using two independent transgenic rice (Oryza sativa) lines overexpressing the rice OsAT10 gene (encoding a “BAHD” CoA acyltransferase), which alters cell wall hydroxycinnamic acid content (more para-coumaric acid and less ferulic acid). Plants were grown under high and low water levels, and traits related to leaf anatomy, cell wall composition, gas exchange, hydraulics, plant biomass, and canopy-level water use were measured. Alteration of hydroxycinnamic acid content led to statistically significant decreases in mesophyll cell wall thickness (-14%), and increased mesophyll conductance (+120%) and photosynthesis (+22%). However, concomitant increases in stomatal conductance negated the increased photosynthesis, resulting in no change in intrinsic water-use efficiency (ratio of photosynthesis to stomatal conductance). Leaf hydraulic conductance was also unchanged; however, transgenic plants showed small but statistically significant increases in above-ground biomass (+12.5%) and canopy-level water-use efficiency (+8.8%; ratio of above-ground biomass to water used) and performed better under low water levels than wild-type plants. Our results demonstrate that changes in cell wall composition, specifically hydroxycinnamic acid content, can increase mesophyll conductance and photosynthesis in C3 cereal crops such as rice. However, attempts to improve photosynthetic water-use efficiency will need to enhance mesophyll conductance and photosynthesis whilst maintaining or decreasing stomatal conductance.