Geostationary infrared satellite observations are spatially dense [>1/(20 km)2] and temporally frequent (>1 h−1). These suggest the possibility of using these observations to constrain subsynoptic features over data-sparse regions, such as tropical oceans. In this study, the potential impacts of assimilating water vapor channel brightness temperature (WV-BT) observations from the geostationary Meteorological Satellite 7 (Meteosat-7) on tropical convection analysis and prediction were systematically examined through a series of ensemble data assimilation experiments. WV-BT observations were assimilated hourly into convection-permitting ensembles using Penn State’s ensemble square root filter (EnSRF). Comparisons against the independently observed Meteosat-7 window channel brightness temperature (Window-BT) show that the assimilation of WV-BT generally improved the intensities and locations of large-scale cloud patterns at spatial scales larger than 100 km. However, comparisons against independent soundings indicate that the EnSRF analysis produced a much stronger dry bias than the no data assimilation experiment. This strong dry bias is associated with the use of the simulated WV-BT from the prior mean during the EnSRF analysis step. A stochastic variant of the ensemble Kalman filter (NoMeanSF) is proposed. The NoMeanSF algorithm was able to assimilate the WV-BT without causing such a strong dry bias and the quality of the analyses’ horizontal cloud pattern is similar to EnSRF’s analyses. Finally, deterministic forecasts initiated from the NoMeanSF analyses possess better horizontal cloud patterns above 500 km than those of the EnSRF. These results suggest that it might be better to assimilate all-sky WV-BT through the NoMeanSF algorithm than the EnSRF algorithm.