An experiment was conducted in indoor lysimeters to study the effect of deficit irrigation on water use efficiency and bird pepper (Capsicum annuum L.) production under drip irrigation system. Six-week-old seedlings were transplanted into each lysimeter in the first of July, 2004. Four seedlings were grown in each lysimeter. Three irrigation treatments were investigated. The first treatment (W1) was 100% of the field capacity as a control. The second and third treatments (W2 and W3) were giving 85% and 70% of the field capacity, respectively, as deficit irrigation treatments. The deficit irrigation practice was applied after 15 days of the transplanting and continued for the whole growth season. The results indicated that the highest yield was obtained from W1 which grown under no stress. Deficit irrigation tends to increase water use efficiency and decrease the fresh fruit yield. Giving 85 % of the field capacity (W2) led to save 41% of the irrigation water and reduce the total yield by 29 %. Giving 70% of the field capacity (W3) resulted in 85 % of irrigation water saving but 40% of the total yield was lost. . In conclusion, water deficit is a practical technique to save large amounts of water.