Montana's water law system blends the traditional prior appropriation system with new legal concepts designed to deal with modern water rights issues.

Water rights in Montana are guided by the prior appropriation doctrine - first in time, first in right. Montana has circumscribed the traditional absolute right to appropriate with protections of the environment, water quality, and areas of origin.

Water rights in Montana are regulated by the Montana Water Use Act of 1973 (Mont. Code Ann. § 85-2-101 et seq.). The Water Use Act sets up two methods for perfecting a water right. First, all water rights existing prior to July 1, 1973, must be perfected in one of a number of statewide adjudications (§ 85-2-211 et seq.). Pre-1973 domestic and livestock water uses are exempt from the adjudication process. A special water court, divided into four water divisions, was created to adjudicate pre-1973 water rights. Second, new or additional water right claims made after 1973 must be perfected by seeking a permit from the Department of Natural Resources and Conservation ("DNRC") (§ 85-2-301 et seq.).

Today, a party may appropriate unappropriated water by applying for a "Permit to Appropriate Water" from the DNRC. In order to appropriate water, the party must prove by a preponderance of evidence that: (1) there is water physically available at the proposed point of diversion; (2) the water rights and/or water quality of a prior appropriator will not be adversely affected; (3) the water will be placed to a beneficial use on property in which the party has a possessory interest; and (4) the party has the capability to carry out the diversion (§ 85-2-310). Water appropriations that may significantly affect the quality of the human environment require the preparation of an environmental impact statement for the application. Applications to appropriate water are generally processed in 210 days.

In order to change the use of a water right (the point of diversion, place of use, purpose of use, or place of storage, etc.) a party must submit an "Application for Change of Appropriation Water Right" (§ 85-2-402). To change the use of a water right, a party must prove that the change will not adversely affect the use of other water rights or water quality. Montana water law allows for temporary appropriations and temporary changes in the use of water rights.

The Water Resources Division located in the DNRC regulates existing water rights and develops new water resources. Within the Water Resources Division, the Water Projects Bureau owns and operates 22 dams in the state, the Water Rights Bureau administers the use of water in the state, and the Water Management Bureau provides technical assistance to state agencies and the state Water Courts.

Groundwater in Montana is governed by appropriation requirements similar to surface water. A party does not need to apply for a permit to develop a well with an anticipated use of 35 gallons per minute or less (not to exceed 10 acre-feet per year). Small well users need only keep a "Well Log Report" for 60 days and send it to DNRC. For valid well appropriations, DNRC will issue a Certificate of Water Right. For groundwater appropriations over 35 gallons per minute, a party must submit an application for a "Permit to Appropriate Water" before developing the well.

Some unique features of Montana water law designed to deal with modern water right issues include: provisions that regulate the appropriation of water for transport out of state (§ 85-2-311(4)); a special rule that only DNRC may make an appropriation in excess of 4,000 acre-feet (§ 85-2-301(2)(a)(ii)); a requirement that the state legislature must approve any groundwater appropriation in excess of 3,000 acre-feet (§ 85-2-317); a right for the Department of Environmental Quality to petition for special restrictions in "highly appropriated basins" where water quality would be threatened by additional appropriations; the ability of the state to make reservations of water for future beneficial uses in the basin where it is reserved (§ 85-2-316(2)); and creation of a special commission to negotiate compacts to resolve federal reserved water right claims (§ 85-7-701).