Water supply and sanitation in Australia is a topic concerning the consumption and obtainment of water for the Australian population. Being the driest inhabited continent in the world, and also one of the highest consumers of water per capita, both the acquisition and usage of water are of concern to Australians. Issues such as climate change and global warming are expected to impact the supply of water in Australia in the future, which can lead to severe consequences such as prolonged droughts.

Historically, Australia's variable rainfall levels have caused the construction of various dams and reservoirs in major water systems, to ensure that a consistent water supply exists for its population. The Murray-Darling river, Australia's largest river by capacity, supplies 55% of the total water usage in Australia, and is primarily used for agriculture in South Australia, New South Wales, and Victoria. Other prominent water sources have included groundwater, desalinated marine water, and recycled water.

The government management of water supply and distribution are a responsibility of each state government. State-owned companies are in charge of service provision in Western Australia, South Australia and the Northern Territory, while utilities owned by local governments provide services in parts of Queensland and Tasmania. In Victoria, New South Wales and Southeast Queensland, state-owned utilities provide bulk water which is then distributed by utilities owned by either local or state governments. The Minister for Water is responsible for water policies at the federal level.

Restrictions on water usage have been implemented at various points in Australia's history, in response to widespread droughts. Policies involve the prohibition of water usage for non-essential purposes, such as sprinklers and car washing. In less urgent times, residents are still encouraged to conserve water and apply practices such as effluent reuse, rainwater harvesting and using greywater for various applicable purposes. Larger scale projects in wastewater reclamation have been discussed in many major cities and successfully applied in Adelaide and Brisbane.

In 2006, Perth became the first Australian city to operate a seawater desalination plant, the Kwinana Desalination Plant, to reduce the city's vulnerability to droughts. Additional plants followed for major cities around Australia, such as Kurnell which supplies Sydney metropolitan area during droughts and low dam levels Gold Coast Desalination Plant supplying the Gold Coast and additionally the South East Queensland area by the SEQ Water Grid Victorian Desalination Plant supplying Melbourne metropolitan area. Adelaide Desalination Plant with capacity to supply up to 50% of Adelaide's water requirements.

Water resources and water use Australia is the driest inhabited continent on Earth, and among the world's highest consumers of water. Amongst OECD nations Australia is ranked fourth-highest in water use per capita. Total water runoff in 2004–05 was estimated at 243 billion cubic meters (BCM) and total groundwater recharge was estimated at 49 BCM, giving a total inflow to Australia's water resources of 292 BCM. Over 50 per cent of runoff occurred in northern Australia. Only 6 per cent of Australia's runoff was in the Murray-Darling Basin, where 50 per cent of Australia's water use occurs. Australia's total large dam storage capacity was 84 BCM. While surface water is well known, groundwater resources are not well known.

In 2004–05 the National Water Commission undertook water balance assessments for 55 priority geographic areas across Australia. Of these water management areas six were overused (consumptive use was greater than sustainable yield) and seventeen had a high level of consumptive use as a proportion of inflows (consumptive use greater than 30 per cent of inflows). Two water management areas (Great Artesian Basin and Mereenie Sandstone – Alice Springs) had consumptive use greater than total annual inflow. Total water use in Australia in 2004–05 was nearly 80 BCM, with about 75 per cent of this water returned to the environment following in-stream uses such as hydroelectric power generation. Consumptive use of water in the Australian economy in 2004–05 was 18.8 BCM (6.4 per cent of resources), with the agriculture sector the largest user (65 per cent), followed by household use (11 per cent). Residential water use declined from 243 liter/person/day in 2003 to 191 in 2007.The International Benchmarking Network for Water and Sanitation Utilities (IBNET):Australia Country Report, accessed 20 September 2010

According to the Prime Minister's office, as the impact of climate change intensifies, Australia faces increasingly acute long-term water shortages with lower rainfall, rivers drying up and dam water levels falling. In most parts of Australia, surface water stored in reservoirs is the main source for municipal water supply, making water supply vulnerable to droughts; only a much smaller share comes from groundwater. Non-conventional water sources, such as seawater desalination, play an increasing role in Australia's water supply, with one desalination plant commissioned to supply Perth and others being built in Sydney, the Gold Coast, Melbourne, Adelaide, and another is planned to be built at Port Augusta.

The use of reclaimed water – the non-potable reuse of treated wastewater for irrigation of green spaces, golf courses, agricultural crops or industrial uses – is common and increasing in Australia. Among the 20 largest water utilities in Australia, the largest volume of recycled water supplied was by SA Water in Adelaide (25,047 ML or 29.6% of sewage collected), while the lowest volume of recycled water was by ACTEW in Canberra (2,104 ML or 7.4% of sewage collected).

Adelaide

Adelaide receives its drinking water from six sources: the River Torrens, flowing from the Adelaide Hills through the city into the sea, with storage provided in the Millbrook Reservoir, Kangaroo Creek Reservoir and Hope Valley Reservoir; the Onkaparinga River south of Adelaide with storage in the Mount Bold Reservoir, downstream of which water is diverted by the Clarendon Weir via a tunnel to the Happy Valley Reservoir on the Field River; The Barossa Reservoir, the Warren Reservoir, South Para Reservoir and the Little Para Reservoir north-east of Adelaide; Most years the flow to these reservoirs is supplemented by water pumped from the River Murray through two pipelines, the Mannum–Adelaide pipeline to the reservoirs on the River Torrens, the South Para Reservoir and Warren Reservoir, and the other from Murray Bridge to the reservoirs on the Onkaparinga River; The Myponga Reservoir on the Myponga river about 60 km south of Adelaide, supplying about 5% of the city's water supply. The Adelaide Desalination Plant with the capacity to supply up to 50% of Adelaide's water needs, but currently only supplying approximately 4%.

The amount of water required from the River Murray varies from about 40 per cent of Adelaide's water needs in a normal rainfall year to as much as 90 per cent in a dry year. At full capacity the above-mentioned reservoirs hold about 200 million cubic meters of water, or a little less than one year's supply for metropolitan Adelaide.

A desalination plant near Port Augusta has been proposed which will supply almost all the residential water needs of towns on the Spencer Gulf.

Brisbane and Gold Coast Water storage, treatment and bulk supply for Brisbane is handled by Seqwater, which sells on to Brisbane Water for distribution to the Greater Brisbane area. Water for the area is stored in three major dams; Wivenhoe Dam on the Brisbane River, Somerset on the Stanley River and North Pine on the North Pine River. Water is also provided by a number of smaller dams that are connected via the SEQ Water Grid. The Wivenhoe Dam is shared with the Gold Coast, which has two more water sources, the Hinze Dam and the smaller Little Nerang Dam, both on the Nerang River. Groundwater from North Stradbroke Island is also transferred to the mainland to supplement the area's water supply. Gold Coast Water has constructed a desalination plant at Tugun, commissioned in 2009. A Southern Regional Pipeline is also under construction that will share Gold Coast water with the rest of South East Queensland.

The A$2.5 billion Western Corridor Recycled Water Project whose construction began in 2006 includes the construction of three new wastewater treatment plants, 200 km of pipelines and 12 pumping stations. It will provide reclaimed water to industrial users, agricultural users and to supplement drinking water supplies in Wivenhoe Dam.Western Corridor Recycled Water Project. Retrieved 28 April 2009.

A severe drought in 2005–2007 triggered major investments, including the Tugun desalination plant and the Western Corridor Recycled Water Project. When rainfall became abundant in 2008-2010 and reservoirs were full, the state government decided in 2010 to put the Tugun plant in stand-by mode, operating at less than 10% of capacity, and to close down a new advanced wastewater treatment plant on Gibson Island in order to save power and chemicals.Global Water Intelligence:Aussie plants go into hibernation, December 2010, p. 26

Canberra

Canberra draws its water supply from three separate catchment systems: The Cotter River catchment, within the ACT; the Googong system on the Queanbeyan River in New South Wales; and the Murrumbidgee River, at the Cotter Pump Station. All these rivers drain into the Murray River which is ultimately part of the Murray-Darling Basin.

Melbourne

An adequate supply of fresh drinking water and the proper disposal of sewage was an early priority in Melbourne. In 1853, a Commission of Sewers and Water Supply was established to improve the provision of each. The Yarra River above the falls was the main source of drinking water till the completion of the Yan Yean Reservoir. Construction began in December 1853 and was completed on the last day of 1857. The commission was unable to find the money to create a sewer system for Melbourne. As a result, the Yarra below the falls continued for years as a dumping ground for sewerage, offal and other noxious waste.

Some 90% of Melbourne's drinking water comes from uninhabited mountain ash forests high up in the Yarra Ranges east of Melbourne. More than 157,000 hectares has been reserved for the primary purpose of harvesting water. These water supply catchments have been closed to the public for more than 100 years. Melbourne's water supply system is based on the principle that it is better to start with the highest quality source water than having to treat it to reach required standards. According to Melbourne Water, Melbourne is one of only about five cities in the world that has such protected catchments. Water from the forests flows through streams in reservoirs, which provide security of supply for times of drought. One of these reservoirs is formed by the Thomson Dam on the Thomson River located about 130 km east of Melbourne in Gippsland, from where water flows through a 19 km long tunnel through the Great Dividing Range into the Upper Yarra Reservoir and then onto Silvan Reservoir for distribution as drinking water in Melbourne. The millennium drought resulted in depletion of much of the water in the reservoir of the Thomson Dam but as of 2022 it is approaching full capacity.

In June 2007, the Victorian State Government announced a new plan to provide water security for Victoria's growing population and economy by diversifying and boosting water supplies, networking the State's water resources in a Victorian Water Grid and enabling a rapid and flexible response to changing future water needs. The plan includes A$4.9 billion of projects to secure Melbourne and Victoria's water supplies for the long term, including: