The purpose of this study is to examine relationship between water consumption and regional economic growth in Taejeon and Chungnam Area, and to obtain policy implications of the results. To this end, two approaches are suggested and applied. First, the author investigates the relationship between water consumption and regional economic growth during 1973-2001, a period of rapid increase in water consumption caused by prompt industrialization and urbanization. Some discussions of the results are provided. Second, the author attempts to provide more careful consideration of the causality issues by applying modern rigorous techniques of Granger causality. Tests for unit roots, co-integration, and Granger causality are presented. The existence of bi-directional causality between water consumption and regional economic growth is detected. This finding has a number of implications for policy analysts and forecasters in Taejeon and Chungnam Area. Increasing economic development requires enormous water supply investment, though there are many other factors contributing to regional economic growth, and water consumption is but one part of it. Thus, this study generates confidence in decisions to invest in the water supply infrastructure. Moreover, this study lends support to the argument that an increase in real income, ceteris paribus, gives rise to water consumption. Regional economic growth results in a higher proportion of national income spent on water supply services and stimulates further water supply investment.