Recycling water means treating and using water, such as sewage, stormwater, industrial wastewater or greywater, for non-drinking purposes such as for industry, toilets, cooling towers, and irrigation of gardens, lawns, parks and crops.

Roofwater collected in rainwater tanks is not technically 'recycled' but it is used for the same purposes as recycled water and guidelines for its use recognise that some caution is needed because there are some health and environmental risks from inappropriate use.

By using recycled water, citizens can reduce their reliance on variable rainfall, contribute to improved river health and save precious river and dam water for drinking purposes. All forms of wastewater have the potential to harm human health and pollute the environment. However, when managed properly and using appropriate processes, wastewater can be converted into a valuable resource. Utilities undertaking construction or modification of a water recycling scheme are required, under Section 60 of the Local Government Act 1993, to seek approval from the Office of Water.

Recycled water plays a key role in urban water planning and integrated water cycle management. Increased water recycling is a key element of the NSW State Plan.