The study assesses urban freshwater users’ perception of watershed degradation and users' willingness to pay for upland degraded watershed management. Cross sectional data was collected from 282 urban freshwater users. A number of causes and effects of watershed degradation and water supply problems are identified. Economic instruments and mechanisms are also identified as the basis of charging and collecting the fee for watershed management, respectively. Besides, contingent valuation result shows that about 82 percent of the respondents were willing to pay for upland degraded watershed management. The mean willingness to pay from the spike model was computed to be 97 Ethiopian birr (ETB) per annum for ﬁve years whereas the mean willingness to pay from the open-ended elicitation method was computed 70 ETB per year. Urban freshwater user willingness to pay is affected by total income, initial bids, marital status, ownership of house and educational levels. The study recommends that any watershed management activities need to consider the socio-economic variables of the affected respondents. Besides, it is worthy to consider the demand of the urban dweller (downstream users) for any upland degraded watershed management.