Studying water governance at multiple levels can link national or regional objectives with local development priorities. Improving water governance requires rethinking water issues through multiple perspectives, and strategic uses of cooperative partnerships and deliberative processes. Understanding community-based water governance (CBWG) has a critical role to play in constructing a broad pluralistic approach to successful water governance, which starts from the lowest level of local water users’ groups; and involves networks and linkages across different levels. This paper takes an empirical focus on CBWG processes and outcomes under China’s powerful enforcement of integrated water resources management (IWRM). It shows that CBWG combined with poorly developed policies and lack of multi-level cooperation can reinforce destructive practices in collective forms which are more dangerous, costly and difficult to detect. It concludes that communities have an important role to play in global water governance especially in constructing localized and polycentric frameworks for successful water governance, however community-based water governance per se like market-based or centralized governance as a panacea is insufficient. Approaches are needed that enable in-depth understanding of multi-level institutions in polycentric policy development and implementation, whilst incorporating flexibility to account for physical, socio-economic and political specificities.