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Abstract Amidst intensifying global agricultural water demand, optimizing management practices and understanding the role of soil amendments, particularly biochar (BC), in modulating soil water dynamics are critical. Here, we review the potential impacts of BC on soil water dynamics, elucidate mechanistic underpinnings, and identify critical research gaps and prospective avenues. In general, BC modifies soil structure, hydraulic properties, surface albedo, and heat fluxes, which influence soil water storage, energy balance, and irrigation paradigms. Depending on soil texture and BC properties, BC demonstrates a greater reduction in bulk density and saturated hydraulic conductivity in coarse-textured soils compared to fine-textured soils. BC application generally increases water holding capacity (WHC) while exhibiting no consistent impact on soil water infiltration. Increased WHC of soils results from increased porosity, surface area, and soil aggregation. Increased porosity arises from a confluence of factors, encompassing new pores formation, reorganization of pores, increased soil aggregation, dilution effects of BC, reduced soil compaction, and biotic interactions, including increased population of burrowing invertebrates. BC tends to increase plant-available water in coarser soils, attributed to its hydrophilic nature, augmented specific surface area, and enhanced overall porosity. However, BC may induce soil water repellency, contingent upon variables such as feedstock composition, pyrolysis temperature, and specific soil attributes. While BC exhibits transformative potential in enhancing soil hydraulic properties, scalability concerns and economic viability pose challenges to its widespread agricultural application. Overall, BC offers promising avenues for sustainable water management. However, it is imperative to explore large-scale applications and conduct long-term field studies across different management, climate, and soil types to fully understand how different types of BC impact soil water dynamics. Graphical Abstract