Greater yield per unit rainfall is one of the most important challenges in dryland agriculture. Improving intrinsic water‐use efficiency (WT), the ratio of CO2 assimilation rate to transpiration rate at the stomata, may be one means of achieving this goal. Carbon isotope discrimination (Δ13C) is recognized as a reliable surrogate for WT and there have now been numerous studies which have examined the relationship between crop yield and WT (measured as Δ13C). These studies have shown the relationship between yield and WT to be highly variable. The impact on crop yield of genotypic variation in WT will depend on three factors: (i) the impact of variation in WT on crop growth rate, (ii) the impact of variation in WT on the rate of crop water use, and (iii) how growth and water use interact over the crop's duration to produce grain yield. The relative importance of these three factors will differ depending on the crop species being grown and the nature of the cropping environment. Here we consider these interactions using (i) the results of field trials with bread wheat (Triticum aestivum L.), durum wheat (T. turgidum L.), and barley (Hordeum vulgare L.) that have examined the association between yield and Δ13C and (ii) computer simulations with the SIMTAG wheat crop growth model. We present details of progress in breeding to improve WT and yield of wheat for Australian environments where crop growth is strongly dependent on subsoil moisture stored from out‐of‐season rains and assess other opportunities to improve crop yield using WT