Background Luminal water imaging (LWI), a multicomponent T 2 mapping technique, has shown promise for prostate cancer (PCa) detection and characterization. Purpose To 1) quantify LWI parameters and apparent diffusion coefficient (ADC) in PCa and benign peripheral zone (PZ) tissues; and 2) evaluate the diagnostic performance of LWI, ADC, and PI‐RADS parameters for differentiation between low‐ and high‐grade PCa lesions. Study Type Prospective. Subjects Twenty‐six PCa patients undergoing prostatectomy (mean age 59 years, range 46–72 years). Field Strength/Sequence Multiparametric MRI at 3.0T, including diffusion‐weighted imaging (DWI) and LWI T 2 mapping. Assessment LWI parameters and ADC were quantified in index PCa lesions and benign PZ. Statistical Tests Differences in MRI parameters between PCa and benign PZ were assessed using Wilcoxon signed tests. Spearman correlation of pathological grade group (GG) with LWI parameters, ADC, and PI‐RADS was evaluated. The utility of each of the parameters for differentiation between low‐grade (GG ≤2) and high‐grade (GG ≥3) PCa was determined by Mann–Whitney U tests and ROC analyses. Results Twenty‐six index lesions were analyzed (mean size 1.7 ± 0.8 cm, GG: 1 [ n = 1; 4%], 2 [ n = 14, 54%], 3 [ n = 8, 31%], 5 [ n = 3, 12%]). LWI parameters and ADC both showed high diagnostic performance for differentiation between benign PZ and PCa (highest area under the curve [AUC] for LWI parameter T 2,short [AUC = 0.98, P < 0.001]). The LWI parameters luminal water fraction (LWF) and amplitude of long T 2 component A long significantly correlated with GG ( r = –0.441, P = 0.024 and r = –0.414, P = 0.036, respectively), while PI‐RADS, ADC, and the other LWI parameters did not ( P = 0.132–0.869). LWF and A long also showed significant differences between low‐grade and high‐grade PCa (AUC = 0.776, P = 0.008 and AUC = 0.758, P = 0.027, respectively). Maximum diagnostic performance for discrimination of high‐grade PCa was found with combined LWI parameters (AUC 0.891, P = 0.001). Data Conclusion LWI parameters, in particular in combination, showed superior diagnostic performance for differentiation between low‐grade and high‐grade PCa compared to ADC and PI‐RADS assessment. J. Magn. Reson. Imaging 2020;52:271–279.