In the past, the water industry met new demand by increasing supply. In many instances governments provided excessive and free supply in pursuit of political objectives such as settlement of remote land. These policies generated inefficient and low-value use and in many instances created environmental problems. Sometime during the 1970s, community concern over the environmental impact and rising marginal costs of increasing supply caused the emergence of a shift in policy paradigms towards demand management, under which increased demand can only be satisfied through a reallocation of existing scarce resources between competing users. Australia is one of the countries in the world that has most comprehensively pursued this new policy paradigm, and provides an excellent case study of the policy change process within the context of a developed country. This article analyzes the Australian policy process from a broad policy-making perspective, as well as from a community-based perspective, with emphasis on the period since 1990.