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Greater yield per unit rainfall is one of the most important challenges in dryland agriculture. Improving intrinsic water-use efficiency (W(T)), the ratio of CO(2) assimilation rate to transpiration rate at the stomata, may be one means of achieving this goal. Carbon isotope discrimination (Delta(13)C) is recognized as a reliable surrogate for W(T) and there have now been numerous studies which have examined the relationship between crop yield and W(T) (measured as Delta(13)C). These studies have shown the relationship between yield and W(T) to be highly variable. The impact on crop yield of genotypic variation in W(T) will depend on three factors: (i) the impact of variation in W(T) on crop growth rate, (ii) the impact of variation in W(T) 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 Delta(13)C and (ii) computer simulations with the SIMTAG wheat crop growth model. We present details of progress in breeding to improve W(T) 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 W(T).