Australia is the driest permanently inhabited continent. With annual rainfall of less than 600 millimetres across 80 per cent of the land and drought a regular feature of the Australian climate, the development of water resources in regional Australia has made a significant contribution to national wealth, underpinning the development of primary industries as well as cities and towns. Settlement and economic growth has relied upon large-scale damming, diversion, pumping and drainage of surface waters, reclamation and loss of wetlands and extraction of groundwater for irrigation, stock, domestic and industrial use. Many of Australia’s waters and water-dependent ecosystems have suffered degradation, including declining water quality, habitat loss, salinisation and loss of biodiversity. Balancing the needs of the environment — including the flows required to maintain and restore healthy rivers — with water allocation for consumptive users, is a major task facing Australian governments and communities. This paper reflects on the co-operative, intergovernmental responses in Australia to increase the efficiency of water use and improve the sustainability and productivity of the agricultural sector, while promoting the health of river and groundwater systems. Case studies, including from the Murray-Darling Basin and Great Barrier Reef catchment, illustrate approaches taken by Australian policymakers for policy setting and programme delivery to achieve these multiple objectives.