Bioenergy production using woody biomass is a major climate change mitigation strategy but is often considered in terms of competitive effects on water. This paper describes the use of a short-rotation biomass system (Phase Farming with Trees PFT or ‘Kamikaze Forestry’) to manage water in dryland farming systems where this has accumulated below the root zone and has on and off-site environmental impacts. This excess water can be utilized for growth by deep-rooted, high-density biomass plantations inserted as short rotations into agricultural land. The objective is to promote rapid growth and mining of deep stored water through strategies such as high planting densities, the use of fast-growing species or fertilization each of which increases leaf area. Once the water is used, the trees are harvested and excess water is allowed to build up again in the subsequent cropping phase. Biomass production and water depletion were measured in a five-year rotation of trees inserted into a dryland (367 mm yr−1 mean annual rainfall) cereal farming system in south-western Australia. Both were markedly affected by tree age, planting density, and landscape position on a very minor slope. The greatest biomass production was achieved with high-density (4000 stems ha−1) plantings of Eucalyptus occidentalis and Eucalyptus globulus in lower landscape positions. High-density plots of these species in mid and upper landscape positions succumbed to drought after 3–4 years, but depleted available soil water to depths of >8 m, equivalent to 771 mm of stored available water. These results suggest that biomass yield can be readily manipulated through planting density and site selection. Moreover, biomass production can produce positive water management co-benefits.