Insufficient water is the primary limitation to wheat production world-wide. The mechanism of yield increase in wheat was studied in a 3-year field experiment under drought, irrigated and rainfed conditions. Grain yield, harvest index, 1000 kernels weight, the number of spikes/m2 and grains/m2, the number of fertile and sterile spikelets/spike, the number of grains/spike, the number of grains/spikelet and plant height were evaluated. Grain yield under irrigated condition was adversely correlated with nonirrigated condition indicating that selection in a favorable environment does not necessarily result in improved yield under stress. Among the yield components, the number of grains/m2 and grain weight were most affected by water stress while the number of spikelets/spike and spikes/m2 were less affected. The grain yield of wheat was associated with the larger number of grains per unit area under both conditions. The mechanism of yield increase under irrigated condition, however, was different than non-irrigated condition. The results suggested that the larger number of grains/spike should be selected under irrigated condition to increase grain yield, while the higher grain weight and larger number of spikes per unit area under non-irrigated condition should be considered. Harvest index appeared to be a reliable selection criterion for both irrigated and non-irrigated conditions.