Urbanization, industrialization and rapid population growth in developing countries of the Arabian Peninsula are putting increasing pressure on local water authorities and water planners to satisfy the growing urban water and sanitation demands. In the Arabian Peninsula, water resources are limited, average rainfall is low and the seawater and brackish water desalination in addition to limited groundwater resources are the major water supply sources. The population increased from about 17.688 million in 1970 to 38.52 million in 1995 and is expected to reach 81.25 million in 2025. The urban population is expected to rise from 60% in 1995 to more than 80% in 2025. The domestic water demand is expected to rise from 2863 million cubic metres (MCM) in 1990 to about 4264 MCM in 2000 and 10580 MCM in 2025. In Saudi Arabia, the population increased by 143.6% between 1970 and 1995; and it is expected to reach about 40.426 million in 2025, with about 80% urban population. The domestic water demand in the Kingdom is expected to be about 2350 MCM in 2000 and 6450 MCM in 2025. Specialized agencies have been established for water production and distribution, and for wastewater collection, treatment and reuse. Special legislation has been introduced to manage water demands and to protect the interests of the community and its natural resources. Fifty-seven costly desalination plants have been constructed in the Peninsula on the Gulf and Red Sea coasts, as well as water transmission lines to transport the desalinated water to coastal and inland major cities. The seawater desalination unit cost is about US$0.70/m 3 for a large desalination plant with energy priced at world prices. More than $30 billion has been invested on water and sanitation projects. Present desalination production is about 46% of the total domestic demand, and the rest is pumped from deep and shallow aquifers. In general, fragmented legislation and institutional arrangements and low water charges have indirectly resulted in over-usage of domestic water, production of excessive quantities of wastewater, significant leakage, and enhancement of shallow water-table formation and rise in some cities. Facing the challenges of satisfying the growing urban water demands requires several essential measures such as: (a) introduction of new technologies to reduce water demands, and losses, and to enhance wastewater recycling and water conservation; (b) the updating of legislation to coordinate both responsibilities and actions among different water agencies; (c) the introduction of a strong and transparent regulatory framework to adopt different forms of water supply privatization, to reduce the costs of building, operation and maintenance of water and sanitation facilities, and to improve the level of services and billing, leakage and wastewater collection and treatment; (d) an increase in water tariffs to reflect the actual value of the water, and to enhance the awareness of public as to the value of water; and (e) development of short-term and long-term national water plans based on realistic water demand forecasting.