Investments in water lie at the heart of Ethiopia’s policies for poverty reduction, food security and climate change adaptation. This briefing paper draws on micro- and macro-level studies of the economic impacts of access to water in Ethiopia (Hagos et al, 2008; Andersen et al, 2008), to argue that investments in water do appear to offer economic and livelihood benefits to households, increasing their income and resilience. However, rural households also face many other constraints to income generation, including poor access to markets, lack of credit availability and limited opportunities for non-farm employment. Packages of investments, combining water supply with interventions to address these other constraints, are therefore recommended to tackle rural poverty and vulnerability and promote pro-poor growth.