Handheld optical sensor was used to measure canopy reflectance at red region (656 nm) and near-infrared region (774 nm) to generate NDVI data for monitoring rice productivity under soil amendment with combinations of fertilizers at two levels of water regime in smallholder Irrigation Scheme, in Lower Moshi, North Tanzania. The study was carried out in an experimental design which consisted of two irrigation water levels (flooding and system of rice intensification) with multi-nutrients (NPK) and single nutrient (urea) application replicated three times in a randomized complete block design. Flood irrigation water was applied at 7 cm height throughout the growing season, while SRI treatment irrigation water was applied at 4 cm height under alternate wetting and drying conditions. The annual rates of fertilizers applied was 120 kg N/ha, 20 kg P/ha, and 25 kg K/ha. The variety SARO-5 was used in this experiment. Simple correlation coefficient (r) was used to measure the degree of association between field crop performance parameters (plant height, number of tillers, biomass, yield) and NDVI across growth stages and three positions of the sensor above the canopy in the tested fertilizer combinations and water regimes. Results show that at any given fertiliser combinations and water levels, there was no significant correlation between plant height and NDVI except for the plant height at a vegetative stage for 0.6 m above the crop canopy and booting stage at 0.3 m and 0.6 m above the canopy, respectively (P < 0.05). A good correlation was also observed between NDVI at booting and full booting stage regardless of the position of the sensor above the canopy and the number of tillers at full booting growth stage (P < 0.05). A significant relationship was observed between rice grain yield and NDVI at the vegetative, booting, and full booting stage. The simple linear regression models explained only slightly < 30% of the yield predictions by NDVI at the early stage of the crop growth, decreasing gradually to 5% at the full booting growth stage. Results demonstrate a positive linear relationship between rice grain yield and NDVI for the tested soil fertiliser amendments and irrigation water regimes. Thus, we conclude that handheld NDVI-based sensor can be used in smallholder rice yield predictions for optimising soil fertiliser use and irrigation water management. This allows future multi-functional land management within the soil–water-food nexus.