Water stress negatively affects the growth and physiology of Capsicum annuum plants. Two cultivars were studied to understand how photosynthesis and other traits are impacted by drought. Plants under water stress had inhibited growth, decreased leaf water content, and altered chloroplast structure. Stomata closed, chlorophyll fluorescence decreased, and photosynthetic parameters were affected. The decrease in net photosynthetic rate was due to stomatal restriction. Overall, the changes in photosynthetic traits, chlorophyll fluorescence, stomata, and chloroplast structure were linked to drought resistance.