Drought is the major abiotic stress limiting groundnut productivity in rainfed areas. Due to lack of efficient holistic screening techniques to screen for drought tolerance, little efforts were made to study the genetics of drought tolerance in groundnut. In the present investigation, efforts were made to understand the nature of inheritance of traits that confer water use efficiency which are highly desirable varietal characteristics for water limited areas. A study comprising of 28 crosses derived from 8 x 8 diallel without reciprocals was carried out at the Regional Agricultural Research Station, Tirupati. The data recorded on twenty three characters influencing yield and moisture stress tolerance were subjected to combining ability, heterosis, genetic parameters, character associations and path co-efficient analysis. In addition, molecular diversity among parents was also performed to delineate the differences among them at molecular level.