A large proportion of global peanut cultivation occurs in arid and semiarid environments, where water scarcity poses a major limitation to productivity. Climate change further intensifies this challenge by causing irregular rainfall patterns. This study aimed to investigate the physiological and yield responses of peanut genotypes under well-watered and water-stressed conditions. Seven genotypes, five drought-tolerant (C76-16, Line-8, PI 502120, AU-NPL-17 and AU16-28) and two drought-sensitive (Valencia-C and AP-3) were evaluated under two irrigation regimes across consecutive years (2024 and 2025). Seven yield-associated traits (number of pods per plant, pod length, pod width, pod yield per plant, seed weight, hundred-seed weight and pod yield per plot) along with three physiological traits (stomatal conductance, photosynthetic efficiency and leaf temperature) were measured at three growth stages. Drought stress caused a significant reduction in almost all traits, including pod yield per plot (42-44%) and hundred-seed weight (24-38%). Stomatal conductance showed the greatest reduction at all stages, especially during flowering (31-80%) and pod filling (45-74%) stages. Correlation analysis revealed that yield-related traits were negatively correlated with stomatal conductance at pod-filling under water-stress conditions. Genotypes such as PI 502120, AU-NPL-17 and C76-16 maintained higher yields with less reduction under water-stressed conditions. This study also confirmed that Line-8 employs a water-saver strategy, whereas PI 502120 uses a water-spender mechanism to cope with water stress. Additionally, findings showed that the flowering and pod-filling stages are more severely affected physiologically by drought stress, which likely contributed to the observed yield reduction.