Drought stress is one of major threats to rice production. The weakening of leaf photosynthesis due to drought is the main reason for the reduction of grain yield, but its mechanism is still obscure. The objectives of this study were to reveal the physiological mechanism of drought stress affecting photosynthetic capacity and grain yield. Pot experiments were conducted with three rice cultivars, Hanyou113 (HY113), Huanghuazhan (HHZ) and Zhonghan3 (ZH3) under four water management treatments (traditional flooding (CK), mild drought stress (LD), moderate drought stress (MD) and severe drought stress (HD)) in 2013 and 2014. Compared with CK, grain yield was significantly reduced by 14.9%, 30.8% and 12.8% in HY113, HHZ and ZH3 under mild drought stress, 32.9%, 33.7% and 22.9% in HY113, HHZ and ZH3 under moderate drought stress and 53.6%, 45.6% and 30.7% in HY113, HHZ and ZH3 under severe drought stress, respectively. The photosynthetic rate (Pn) decreased by 49.0% from 20.0 to 10.2 µmol m-2 s-1 in HY113, and 67.6% from 23.4 to 7.58 µmol m-2 s-1 in HHZ, and 39.3% from 23.4 to 14.2 in ZH3. The Pn of HHZ was similar to that of ZH3 under CK conditions. The yield reduction of drought-resistant cultivars was smaller than that of conventional cultivars. Maintaining leaf water potentia (LWP), Pn, photosystem II (PSII) original light energy conversion efficiency, non–photochemical quenching coefficient (NPQ), and increasing in the ratio of photochemical reaction energy in fluorescence and antioxidant enzyme activity, is the physiological basis to achieve a relatively high photosynthesis. These traits could be the target for breeder to developing drought-tolerant varieties.