Accurate canopy extraction and temperature calculations are crucial to minimizing inaccuracies in thermal image-based estimation of orchard water status. Currently, no quantitative comparison of canopy extraction methods exists in the context of precision irrigation. The accuracies of four canopy extraction methods were compared, and the effect on water status estimation was explored for these methods: 2-pixel erosion (2PE) where non-canopy pixels were removed by thresholding and morphological erosion; edge detection (ED) where edges were identified and morphologically dilated; vegetation segmentation (VS) using temperature histogram analysis and spatial watershed segmentation; and RGB binary masking (RGB-BM) where a binary canopy layer was statistically extracted from an RGB image for thermal image masking. The field experiments occurred in a four-hectare commercial peach orchard during the primary fruit growth stage (III). The relationship between stem water potential (SWP) and crop water stress index (CWSI) was established in 2018. During 2019, a large dataset of ten thermal infrared and two RGB images was acquired. The canopy extraction methods had different accuracies: on 12 August, the overall accuracy was 83% for the 2PE method, 77% for the ED method, 84% for the VS method, and 90% for the RGB-BM method. Despite the high accuracy of the RGB-BM method, canopy edges and between-row weeds were misidentified as canopy. Canopy temperature and CWSI were calculated using the average of 100% of canopy pixels (CWSI_T100%) and the average of the coolest 33% of canopy pixels (CWSI_T33%). The CWSI_T33% dataset produced similar SWP\u2013CWSI models irrespective of the canopy extraction method used, while the CWSI_T100% yielded different and inferior models. The results highlighted the following: (1) The contribution of the RGB images is not significant for canopy extraction. Canopy pixels can be extracted with high accuracy and reliability solely with thermal images. (2) The T33% approach to canopy temperature calculation is more robust and superior to the simple mean of all canopy pixels. These noteworthy findings are a step forward in implementing thermal imagery in precision irrigation management.