Land cover mixture at moderate- to coarse-resolution is an important cause for the uncertainty of global leaf area index (LAI) products. The accuracy of LAI retrievals over land-water mixed pixels is adversely impacted because water absorbs considerable solar radiation and thus can greatly lower pixel-level reflectance especially in the near-infrared wavelength. Here we proposed an approach named Reduced Water Effect (RWE) to improve the accuracy of LAI retrievals by accounting for water-induced negative bias in reflectances. The RWE consists of three parts: water area fraction (WAF) calculation, subpixel water reflectance computation in land-water mixed pixels and LAI retrieval using the operational MODIS LAI algorithm. The performance of RWE was carefully evaluated using the aggregated Landsat ETM+ reflectance of water pixels over different regions and observation dates and the aggregated 30-m LAI reference maps over three sites in the moderate-resolution pixel grid (500-m). Our results suggest that the mean absolute errors of water endmember reflectance in red and NIR bands were both <0.016, which only introduced mean absolute (relative) errors of <0.15 (15%) for the pixel-level LAI retrievals. The validation results reveal that the accuracy of RWE LAI was higher than that of MODIS LAI over land-water mixed pixels especially for pixels with larger WAFs. Additionally, the mean relative difference between RWE LAI and aggregated 30-m LAI did not vary with WAF, indicating that water effects were significantly reduced by the RWE method. A comparison between RWE and MODIS LAI shows that the maximum absolute and relative differences caused by water effects were 0.9 and 100%, respectively. Furthermore, the impact of water mixed in pixels can induce the LAI underestimation and change the day selected for compositing the 8-day LAI product. These results indicate that RWE can effectively reduce water effects on the LAI retrieval of land-water mixed pixels, which is promising for the improvement of global LAI products.