Of the twelve million people who live within 100 km of the US-Mexico border, 90 percent are clustered in trans boundary sister cities that share common water sources and pollution problems. New institutions created to address environmental concerns over NAFTA offer the promise of greater financial and technical assistance for water management in border cities. This paper reviews US-Mexico border water issues and institutions. Using insights from game theory, it draws policy lessons for institutions funding border water projects. We examine how the design of assistance programs, technical support, and pre-existing water rights and regulations affect project outcomes. The diversity and geographic dispersion of water conflicts suggests potential for applying the interconnected game approach to US-Mexico water negotiations. © 2000 Elsevier Science B.V. All rights reserved.