The transaction cost incurred on the Kolaramma tank watershed in the Kolar district of Karnataka, with a geographical area of 6,570 hectares and covering 26 catchments has been found to be Rs 78,89,210. The decomposition of this transaction cost into information, contractual and enforcement costs has revealed that enforcement cost amounted to a vast share of 82.0 per cent, followed by contractual cost (13.6%) and information cost (4.4%) in the total transaction cost. Considering the overall transaction cost, the investment on information and contractual cost has been quite less. These need to be increased by economizing on the administrative expenses of the implementing agency. Any additional investment on information and contractual cost would greatly benefit the actual beneficiaries in the watershed.