The study is performed to analyze the water utilization pattern of Kathmandu valley and evaluate the performance of the existing water supply system. The factors influencing the efficiency and effectiveness of the existing water supply system are evaluated taking into consideration various performance indicators.....The single water use criteria, unreliability, poor service delivery, reduced drinking water quality in major city areas and inequality in water distribution have reduced the consumers willingness to pay which inturn decreased the revenue collection....Demand management measures as water tariff reform, rainwater harvesting and public awareness will be important tools in influencing the water supply and demand, other measures such as Melamchi water supply project will add in improved water supply situation in Kathmandu valley.