Abstract: Environmental efficiency is an important index to measure the coordinated development of japonica rice production economy and environment, and its improvement is the key to realize the green and sustainable increase. Based on the gray water footprint perspective, this paper selected panel data from 13 major japonica rice-producing provinces in China from 2005 to 2020 and constructed a mediation effect model based on SBM-DEA to empirically analyze the internal mechanism of rural labor transfer affecting environmental efficiency of japonica rice production. The results showed that the gray water footprint emissions of japonica rice production in China decreased significantly from 2005 to 2020, but the range of high gray water footprint was obviously expanded. China’s annual mean value of the environment efficiency of japonica rice production was 0.775 0 and this number decreased from 2005, implying an ever-increasing ecological cost of japonica rice production. The rural labor transfer significantly reduced the environmental efficiency of japonica rice production. Although it could be improved by increasing the per capital deposable income and promoting the scale of japonica rice production to a certain extent, it could not fully make up for the direct efficiency loss caused by labor transfer at the current stage. In summary, the government should encourage the development of rural economy, promote the nearby transfer of labor force for employment, accelerate the improvement of rural land transfer mechanism, and build an effective platform to improve the environmental efficiency of grain production.