This study computes the eco‐efficiency of high‐yielding variety (HYV) rice production by including an on‐farm environmental damage index (OFEDI) as an undesirable output using data envelopment analysis. It then identifies its determinants by applying an interval regression procedure on a sample of 317 farmers from north‐western Bangladesh. Results reveal that the mean level of the OFEDI‐adjusted production efficiency (i.e. eco‐efficiency) is 89 per cent, whereas ignoring OFEDI adjustment (i.e. with OFEDI = 0) reduces the mean level of efficiency to 69 per cent, implying that the production of undesirable output or on‐farm environmental damage induces an efficiency loss of 20 per cent with significant differences across regions. The proportion of farmers’ income from HYV rice agriculture, land ownership, extension services and socio‐environmental living standard are the significant determinants of improving eco‐efficiency. Policy implications include investments in extension services and land reform measures to increase land ownership, which will synergistically improve eco‐efficiency of HYV rice production in Bangladesh.