Utilization of stress tolerant maize is key to sustainable production and food security. Limited knowledge on genetics of drought tolerance hampers development of drought tolerant varieties. The aim of this study was to study inheritance and combining ability of drought tolerance and grain yield among early inbred lines of maize. Five inbred lines were mated in full diallel in 2015 major season. The resultant 20 hybrids, 5 parents and 2 checks were evaluated under drought stress and well watered conditions in a screen house. Data was collected on days to 50% tasseling (DT 50%), days to 50% silking (DS 50%), anthesis-silking interval (ASI), leaf rolling, leaf senescence, plant aspect (PASP), plant height (PHT), ear height (EHT), ears per plant (EPP), ear weight, hundred grain weight (100 GW) and grain yield per hectare (GY). Drought condition was induced 40 days after planting (DAP) but watering was continued once per week till maturity. Results from combined ANOVA showed there was high and significant (p<0.01) level of genetic variability among parental lines and hybrids used in all the traits studied except DT 50%, PHT, EHT, EPP and 100 GW. Both additive and non-additive gene actions were important as well as GCA/SCA ratio variance. Lines TZEI-23 (215.22) and TZEI-25 (76.84) had the highest and highly significant (p<0.01) positive GCA effects for GY under drought. Hybrids TZEI-25 x TZEI-13 showed the highest positive and highly significant (p<0.01) SCA effects for GY (385.74) followed by its reciprocal TZEI-13 x TZEI-25 (311.49) under water stress. High broad sense heritability was observed for almost all the traits. High narrow sense heritability were observed DT 50% (0.69), DS 50% (0.80) and leaf senescence (0.61) under drought condition. Eighteen and nineteen hybrids had positive high parent heterosis (HPH) under water stress and well watered conditions, respectively for GY. The parents TZEI-23 and TZEI-25 were identified as the best general combiners respectively under drought and well watered conditions. The highest HPH were observed in many traits for TZEI-13 x TZEI-25 and TZEI-124 x TZEI-13. It is recommended these hybrids are further evaluated in different environments for release to farmers to increase yield.