Preheat your oven to 350°F. Lightly grease a 9x13-inch casserole dish with butter or cooking spray to prevent sticking and make cleanup easier.

In a large mixing bowl, whisk together the cream of mushroom soup, milk, water, and onion soup mix until smooth and well combined with no lumps. This creates the flavorful liquid that cooks the rice and keeps the chicken moist.

Spread the uncooked rice evenly across the bottom of your greased casserole dish. Pour the soup mixture slowly over the rice, making sure every grain gets coated. Gently shake the dish or tap it on the counter so the liquid settles evenly around all the rice.

Place the chicken breasts on top of the rice mixture, pressing them down slightly so they're partially submerged in the liquid. This helps them stay juicy while baking. Sprinkle the paprika, salt, and black pepper evenly over the chicken for color and flavor.

Cover the casserole dish tightly with aluminum foil. Bake for 45 minutes. The foil traps steam, which cooks the rice perfectly and keeps the chicken tender. If you have a meat thermometer, check that chicken reaches 165°F internal temperature.

After 45 minutes, carefully remove the foil. Test the rice by pulling back in one corner with a fork. If the rice is tender and only a small amount of creamy liquid remains around the edges, it's ready. Sprinkle the shredded cheddar cheese evenly over the top. Return the uncovered dish to the oven and bake another 15 minutes until the cheese melts, bubbles, and turns slightly golden.

Remove from the oven and let the casserole rest 5 to 10 minutes before serving. The sauce will look thin at first but will thicken as it rests, making serving much neater. Garnish with fresh chopped parsley if desired.