Influence of leaffolder feeding on chlorophyll, PS II activity and plant–water relations, effect of larval density on leaf damage and time course studies on larval feeding behaviour on altered physiological changes in TN1 rice culture were studied. Quantification of yield losses in the field caused by leaffolder was also assessed. Leaffolder damage resulted in 57% reduction in chlorophyll content, 23% reduction in PS II activity and 23% reduction in relative water content in comparison with control. Rice leaffolder larva folds the leaf and scrapes the green tissue from within the fold resulting in scorching and drying of the leaves. Larval density had differentially influenced effective leaf area of rice crop. Larval densities of more than 3 larvae per hill at maximum tillering stage resulted up to 20% unfilled grains, 28–57% reduction in PS II activity and 23% reduction in relative water content in comparison with the control. At flowering stage, flag leaf area damage of above 25% resulted in more than 50% unfilled grains over control, indicating direct effect of yield reduction in rice. Thus, a cumulative effect of loss in chlorophyll, reduced photosynthate availability and altered water relations caused by the leaffolder injury to flag leaf lead to greater yield loss in rice.