The emergence of rice panicle substantially changes the spectral reflectance of rice canopy and, as a result, decreases the accuracy of leaf area index (LAI) that was derived from vegetation indices (VIs). From a four-year field experiment with using rice varieties, nitrogen (N) rates, and planting densities, the spectral reflectance characteristics of panicles and the changes in canopy reflectance after panicle removal were investigated. A rice “panicle line”—graphical relationship between red-edge and near-infrared bands was constructed by using the near-infrared and red-edge spectral reflectance of rice panicles. Subsequently, a panicle-adjusted renormalized difference vegetation index (PRDVI) that was based on the “panicle line” and the renormalized difference vegetation index (RDVI) was developed to reduce the effects of rice panicles and background. The results showed that the effects of rice panicles on canopy reflectance were concentrated in the visible region and the near-infrared region. The red band (670 nm) was the most affected by panicles, while the red-edge bands (720–740 nm) were less affected. In addition, a combination of near-infrared and red-edge bands was for the one that best predicted LAI, and the difference vegetation index (DI) (976, 733) performed the best, although it had relatively low estimation accuracy (R² = 0.60, RMSE = 1.41 m²/m²). From these findings, correcting the near-infrared band in the RDVI by the panicle adjustment factor (θ) developed the PRDVI, which was obtained while using the “panicle line”, and the less-affected red-edge band replaced the red band. Verification data from an unmanned aerial vehicle (UAV) showed that the PRDVI could minimize the panicle and background influence and was more sensitive to LAI (R² = 0.77; RMSE = 1.01 m²/m²) than other VIs during the post-heading stage. Moreover, of all the assessed VIs, the PRDVI yielded the highest R2 (0.71) over the entire growth period, with an RMSE of 1.31 (m²/m²). These results suggest that the PRDVI is an efficient and suitable LAI estimation index.