Along with most of the West, Nevada water law is based on the system of prior appropriation. Prior appropriation is the system of "First in time, first in right". All waters of Nevada are considered public property. When the state grants a water right, it is granting a right to use the water, not an absolute right of ownership of the water. Once established, however, a water right can only be lost through abandonment or forfeiture.  Nevada's trend of substantial increases in population continues to strain the limited water resources of the state.

To obtain a new water right in Nevada, an applicant must file an application with the State Engineer. The State Engineer will not approve a water right application unless the applicant can prove there is unappropriated water available at the point of diversion; that the new water right would not interfere with existing rights; and that the grant of a new water right will not be detrimental to the public interest. In many areas of Nevada, there is little, if any, unappropriated surface water or ground water remaining. The place of use, manner of use, or point of diversion of existing water rights may be changed through a procedure similar to the original application. Former irrigation water for agricultural use is often utilized to provide portions of the municipal water supply. A person must file an application with the State Engineer.

Nevada is divided into a series of groundwater basins and sub-basins. The State Engineer limits groundwater rights to perennial yield of the basin.

Nevada's two primary urban areas (Clark County and Washoe County and surrounding areas) are served by water service providers which promulgate their own rules for water usage and obtaining "water will serve" commitment letters for new developments. In Northern Nevada, new real estate developments are required to dedicate a certain amount of water rights to the respective water service provider in order to become eligible for water service.

The Truckee River is the primary source of water for the Reno, Sparks and surrounding areas and the Colorado River is the primary source of water for Las Vegas and surrounding areas. Ground water in the Reno Sparks and surrounding areas is also an important component of the water supply. Importation of ground water from other ground water basins to these growing metropolitan areas in order to supplement the water supply has been approved by the State Engineer.