In the early 1990s, Thailand launched an ambitious program of decentralized governance, conferring greater responsibilities upon sub-district administrations and providing fiscal opportunities for local development planning. This process was reinforced by Thailand’s new Constitution of 1997, which explicitly assures individuals, communities and local authorities the right to participate in the management of natural resources. Drawing on a study of water management in the Mae Sa watershed, northern Thailand, this study analyzes to what extent the constitutional right for participation has been put into practice. To this end, a stakeholder analysis was conducted in the watershed, with a focus on the local people’s interests and strategies in water management and the transformation of participatory policies through government agencies at the local level. Government line departments were categorized into development- and conservation-oriented agencies. While government officers stressed the importance of stakeholder inclusion and cooperation with the local people, there is a sharp contrast between the official rhetoric and the reality on the ground. The analysis reveals that government officers, particularly in the conservation-oriented agencies, are not disposed to devolve power to lower levels due to the fear of losing their traditional mandate and persistent stereotypes about local communities’ incompetence to manage water resources in a sustainable way. On their part, villagers do not perceive a tangible change in the implementation of water policies and retain a widely negative image of government officers. In conclusion, the participation of local people in development activities and in the conservation and management of natural resources seems to be currently at the stage of passive or, at best, consultative participation. In order to deal with the severely increasing water problems in northern Thailand, decision-makers have to recognize the value of participation and promote a change of government officers’ attitude towards local people through training programs and incentives. Communities and individuals need to be made aware of their constitutional rights and potentials for cooperating with government agencies and participating in their projects.