The concept of multifunctional agriculture recognizes important potential benefits of agriculture in addition to the production of food: environmental services (wildlife habitat, pleasing landscape), food security, rural livelihoods and regional economic vitality, stable households and communities, cultural heritage and identity, and religious, spiritual, and aesthetic values. Agricultural water can also be considered through a multifunctional lens using the same logic, but also adding functions that are specific to water. Through this analysis, water becomes much more valuable than if it is considered as merely an input to agricultural production. Because paddy-based agriculture is based on water, an understanding of paddy's multifunctional nature helps to highlight the multifunctional nature of agricultural water. Four categories of functions are discussed: (1) economic and productive, (2) environmental, (3) sociocultural, and (4) rural development. Policy strategies for supporting these multiple functions are considered based on examples from Europe and Asia. The paper concludes with a discussion of water management and how the multiple functions of water can be incorporated into practical policies. Making wise decisions about water allocations to agriculture depends upon a sound understanding of the multiple benefits that agricultural water provides beyond the agriculture sector. While more research is needed, there is already a great deal of valuable research that has been carried out in the name of agriculture, and which can be applied to the challenges of understanding and managing agricultural water.