Alternate wetting and drying (AWD) has been recognized as a water‐saving technology in rice production systems; however, pre‐ and post‐flowering AWD could induce changes in yield, quality and aroma biosynthesis in fragrant rice. In the present study, two fragrant rice cultivars (Guixiangzhan and Nongxiang‐18) were subjected to AWD till soil water potential reached −25 to −30 kPa during vegetative stage (VS), reproductive stage (RS), and both stages (VS + RS). The AWD did not affect net photosynthesis and gas exchange significantly, while malondialdehyde (MDA), H2O2 and electrolyte leakage (EL) were higher than in control plants. The AWD treatments variably affected soluble sugars, proline and protein accumulation as well as the activities of superoxide dismutase (SOD), peroxidase (POD), catalase (CAT), ascorbate peroxidase (APX), and reduced glutathione (GSH) contents. Moreover, filled grain percentage and 1000‐grain weight in AWD treatments were found to be statistically similar (p > 0.05) to control, except grains panicle−1 under AWD‐VS + RS that was reduced by 11% and 14% for Guixiangzhan and Nongxiang‐18, respectively. On average, yield and related attributes in Guixiangzhan remained higher than in Nongxiang‐18. In addition, the grain aroma volatile (2‐acetyl‐1‐pyrroline, 2‐AP) content increased by 8.79%, 14.45%, and 6.87% and 7.95%, 14.02%, and 5.04% under AWD‐VS, AWD‐RS, and AWD‐VS + RS treatments, for Guixiangzhan and Nongxiang‐18, respectively. Overall, AWD treatments, either at VS or RS, could promote rice aroma in terms of accumulation of 2AP, which might be linked with enhanced endogenous proline contents (a precursor for 2AP biosynthesis) without any severe consequences on rice yield and quality.