Gracanica Municipality has a number of environmental issues caused by the unsustainable practices and is in need for more sustainable ways to achieve the full potential of economic development. Being rich in surface and ground waters, and having a suitable geographic location, this municipality has a great potential for development. The alternative solutions for the Gracanica Municipality are wastewater treatment and effluent water use, grey water system installation and rainwater harvesting option. These alternatives aim to use the adequate technology to protect public health and environment, meet the demand for water and establish the grounds for gradual improvement of current state of water management in this municipality.