Iran-Afghan relationship is having a long and flourishing historical background. Both the countries shared in religious, socio-economic, cultural and geo-political experiences with a long border sharing. But considerable tensions also emanated from the fundamental differences between the Afghan Sunnites and the Iranian Shiites Muslims. Since long, Iran was concerned over different disputed issues between the two countries as the political anarchy in Afghanistan, drug smuggling, Afghan refugees in Iran particularly after Soviet occupation of Afghanistan and demarcated border issue. But the most ancient dispute between Iran and Afghanistan is the sharing of water of Helmand River which passed over the two countries. For centuries, many measures have been taken bilaterally, trilaterally or multilaterally, but very little success has been shown. This dispute largely influences Iranian foreign policy. Iran’s policy towards Afghanistan has been founded on its multiple geostrategic interests. To secure its water interests, Iran adopted a paradoxical strategy through legal channels and less legitimate operations too. Iran’s official policy is to reach formal agreements and to pursue the benefits of cooperation. At the same time, Iran has been following multiple and contradictory influential policies in Afghanistan. Iran offered economic, social, and cultural assistance to Afghanistan; pressured Kabul over Afghan refugees and migrant workers in Iran; tried to develop a deep bilateral relationship between Tehran and Kabul; attempted to create a gap between Kabul and the West. Iran is also accused having influence-peddling activities into Afghanistan, such as reports, Iran was supplying weapons, equipments to Taliban and some other insurgent groups in Afghanistan, forcing repatriation of Afghan refugees, influencing refugees and Shi’a minorities against Afghan government, and even Iranian border guards aided the escape of alQa’ida fighters from Afghanistan into Iran mainly to undermine Afghan central government, establish a friendly government in Kabul, reduce US influence in the region. One of the main reasons behind Iranian policy is to ensure water supply from Helmand River. Thus the Iranian diverse and sometimes conflicting policies in Afghanistan are mainly centered on water sharing of Helmand River. For regional stability and security, the issue must be solved protecting the rights of Afghans and Iranians within the international law and justice.