This paper analyzes the impact of economic reform on the qualitative parameters of the Czech environment. After delineating the pre-transformation enviromental situation and identifying the main causes and factors of its degradation, an overview of legal changes in the environmental protection laws enacted since 1991 is carried out. There is a relatively autonomous analysis of water quality management and air pollution development viewed as individual aspects of the enviromental issue. The focus is on the consequences of the decline in industrial production during the initial years of transformation on air and water quality, on investment in their protection and on the role of economic instruments in their financing during this period of reduced budgetary subsidies. In addition to water management, this analysis discusses the record of privatization in this regard and evaluates the impact of user charges liberalization on drinking water consumption. The air pollution analysis is focused on the changes in the primary energy resources structure and on the necessary conditions for effective implementation of an energy conservation strategy. The chosen connections in both parts of this analysis are quantified using the simple econometric model. Policy oriented conclusions follow as a result of this analysis.