With groundwater resources becoming less available in the physical, economic, and legal senses, water reuse is rapidly gaining momentum in the arid West. An institutional assessment of water reuse in the Tucson Basin in Arizona indicates that despite institutional changes encouraging the substitution of effluent for native groundwater, many opportunities for water reuse are precluded by existing water rights arrangements and insufficient economic incentives. An economic assessment compares potential benefits and costs of implementing water reuse plans for the Tucson area with potential benefits and costs of alternative water-supply scenarios in which similar quantities of water are provided from other sources. Alternative water sources include pumping native groundwater, "reallocating" water saved through reduction in low value water uses, and importing surface water and groundwater from other basins. The results of this study indicate that at the present time, there is no convincing economic justification for increasing water reuse as planned by the City of Tucson. Not only are reduction in use and importation alternatives less costly to implement than increasing effluent use, they also save more groundwater. The results of the economic assessment indicate that the citizenry of the Tucson Basin would be better served if planned increases in the use of effluent in the Tucson metropolitan area were postponed until the costs become more competitive with the costs of alternatives.