This study estimates the cost effectiveness of alternative environmental policies for controlling nitrate contamination of groundwater in the Seymour aquifer region of Texas. Results from biophysical simulation model are integrated with a farm-level optimization model. The study also compares the cost of bottled water, used as the lower-bound estimate of benefits of groundwater protection, with the least costly environmental policy. Results indicate that the least-cost policy alternative for the region is about $1 million either to farmers or to the local government and it is approximately three times the cost of bottled water.