From its earliest history, Wyoming has adhered to the doctrine of prior appropriation to allocate water rights. Under the leadership of Wyoming's first State Engineer, reclamation pioneer Elwood Mead, Wyoming adopted a comprehensive water rights code in 1890. To this day, the 1890 code serves as the basis for regulating Wyoming's water resources.

Three government agencies are involved in the management and regulation of water resources in Wyoming. The State Engineer is responsible for issuing permits and policing water use through the state's District Water Commissioners. The Board of Control is a Constitutionally created quasi-adjudicatory body that authorizes changes in the use of water rights and hears appeals from decisions of the State Engineer. The Water Development Commission is responsible for water resource planning and development in Wyoming. The Commission is also authorized to appropriate in-stream flow rights.

Wyoming uses a permit system, administered by the State Engineer, to grant water rights to unappropriated water. (Wyo. Stat. Ann. § 41-4-501 et seq.). It is the duty of the State Engineer to approve all applications so long as there is unappropriated water available and a new appropriation will not impair the value of existing rights or be detrimental to the public welfare. Once a permit is granted, the applicant has a determined amount of time to complete the proposed water project. Upon completion of the project and beneficial use of the water, the Board of Control will examine the project and issues a Certificate of Appropriation. A denial of a permit by the State Engineer may be appealed to the Board of Control. A final decision of the Board of Control may be appealed to the district court.

All surface water rights in Wyoming have either been adjudicated or exist within the permit system. Water rights have the status of property and may be sold or conveyed. The type of use or place of use of a water right may be changed after receiving approval of the Board of Control, though the transfer of a water right is limited to the historic use of water. The Board must guarantee that other appropriators are not injured by the change. (§ 41-3-104). The Board may deny a water transfer when a transfer would cause an unacceptable economic loss to the community.

Groundwater, like surface water, is appropriated by obtaining a permit from the State Engineer. (§ 41-3-901 et seq.). The State Engineer may grant a permit only if there is unappropriated water, the well is adequate, the new use will not conflict with any state groundwater regulations, and the appropriation is not detrimental to the public interest. Special restrictions on groundwater appropriation may be imposed if a Groundwater Control Area is designated to deal with groundwater overdraft problems.