The present study, conducted during 2005-06, in two districts, viz. Amritsar and Faridkot of Punjab, (former having pre-dominantly tubewell-irrigated area and the latter having canal + tubewell irrigation facilities) has assessed the extent of water depletion and has measured irrigation efficiency at the farm level. Due to profitability and availability of water at shallow depths during 1970s, paddy and wheat (two of the high water-consuming crops) replaced other crops like maize, groundnut and pulses in the entire state. The area under these two crops increased from 7.22 per cent to 32.92 per cent for paddy and from 37.12 per cent to 43.53 per cent for wheat, from TE 1965 to TE 2005. Consequently, the problem of groundwater depletion has become severe in the Amritsar district, with a fall of 77cm/ annum in watertable. In the district of Faridkot, this fall has been of 33cm/annuum. The technical efficiency of irrigation on farms estimated through Data Envelopment Analysis, has indicated the mean irrigation efficiency of 57 per cent and 65 per cent in paddy production and 61 per cent and 68 per cent in wheat production, in tubewell-irrigated and canal+tubewell irrigated farms, respectively. It has clearly indicated that there is potential to improve irrigation efficiency by 39 per cent and 32 per cent, respectively in the sample farms. To sustain production system in the state, there is an urgent need to (i) do away with the rice-wheat cropping system in the regions where groundwater depletion is very severe, (ii) evolve regulation for use of groundwater and conjunctive use of surface water, and (iii) disseminate improved agronomic practices for increasing use-efficiency of water and other inputs.