Biochar is considered a potential eco-friendly organic amendment to enhance soil characteristics, increase water holding capacity, and improve water use efficiency (WUE) in agricultural land with limited water conditions. Rice straw, a main residue of rice milling, has significant promise for biochar production. This study aimed to (1) examine the potential of rice husk biochar (RHB) application in increasing water holding capacity (WHC) and improving water use efficiency (WUE); (2) determine the optimal dosage of RHB to improve shallot yields. Conducted through a controlled greenhouse experiment in Kuningan Laboratory, Universitas Gadjah Mada, Yogyakarta, the soil samples of the study were collected from hilly areas in Nawungan Village, Selopamioro, Bantul Regency, Yogyakarta. This study used RHB with a pyrolysis temperature of 550°C in four application doses, namely without RHB, B5 (5 ton ha⁻¹), B10 (10 ton ha⁻¹), and B15 (15 ton ha⁻¹). RHB characteristics were analyzed using SEM-EDX, while water distribution and percolation were evaluated using visual and volumetric methods. The results of this study found that RHB can provide mesopores with the potential to enhance the soil's ability to hold water through capillary force, thereby preventing water from easily percolating and moving vertically into the soil profile. RHB doses of up to 15 ton ha-1 reduced water percolation by 25.9%, increased water holding capacity in the soil at various pF, increased yield by 91.78% compared to without RHB application, and improved Actual Water Use Efficiency (WUE), Irrigation Water Use Efficiency (IWUE), Crop Water Use Efficiency (CWUE) values by 87.44%, 92.87%, 92.37% respectively compared to without RHB application. Overall, the application of RHB improved water use efficiency and yield in shallot (Allium cepa L.) cultivation, suggesting its potential for ecologically sustainable agriculture on rainfed agricultural land.