Sheath blight, Rhizoctonia solani (Kuhn), is the most economically important disease in the Midsouth rice (Oryza sativa L.)‐producing area of the USA. The use of excessive N fertilizer has been observed to increase sheath blight damage to rice, but the effect of specific N application rates and timing on sheath blight damage and the resulting rice grain yield are unknown. The primary objective of this study was to examine the effect of N application rate and time on rice grain yield and development of sheath blight. A 3‐yr study contained 20 treatments with all possible combinations of two N fertilization methods (single preflood and two‐way split), five N fertilizer rates (0–250 kg N ha−1), and two rates of azoxystrobin {methyl (E)‐2‐[2‐[6‐(2‐cyanophenoxy)pyrimidin‐4‐yloxy]phenyl]‐3‐methoxyacrylate} fungicide (0 and 0.22 kg ha−1). Application of azoxystrobin, averaged across all other treatment factors, produced a mean rice grain yield of 8740 kg ha−1, which was 16% greater than treatments not receiving azoxystrobin fungicide. Relative lesion height (RLH), averaged across N fertilizer treatments, increased with time when no fungicide was applied. Early‐season application of fungicide prevented disease development from 4 to 6 wk. Fungicide application suppressed RLH but did not alter the N rates required to produce maximum grain yields. Application of high preflood N fertilizer rates, regardless of method, increased the initial RLH during early reproductive growth but had little effect on the RLH after heading. The effect of RLH on grain yield showed similar patterns as that found for total N rate on grain yield. The N rates required to produce maximum yields also tend to enhance early‐season sheath blight.