Melbourne's location was determined by the need to have access to fresh water for drinking and salt water for commerce and transportation. Yarra Falls, the rocky bar across the Yarra River roughly where Queen Street reaches down to the river, normally kept tidal salt water from flowing any further upstream. In Melbourne's early years water sellers carted water from the river and sold it door to door but the rapid growth of the town soon undermined this arrangement. Collingwood used the river as a drain and a sewer for household and industrial waste, compromising the quality of the water used for drinking further downstream. In what became a recurring pattern, rapid city growth and health threats from polluted water provoked a search for alternatives.
In order to avoid outbreaks of cholera or other infectious diseases that periodically devastated European cities it was decided that a supply of pure water would be piped to each residence, with the public rather than the private sector providing the service. Melbourne Town Council insisted that it should supply the town, but the colonial government took over the responsibility, first through a specially established board and then through a government department.
After much debate James Blackburn's scheme to use the waters of the Plenty River was adopted. Engineer Matthew Bullock constructed an embankment at Yan Yean that created one of the world's largest reservoirs to that time. From there water was piped into the city and reticulated to individual houses. This ambitious scheme, opened amid great fanfare in 1857, was the newly independent Victoria's first major public work. Continuing problems with impurities, water pressure and delivery gave rise to several ineffectual parliamentary inquiries before the emerging science of bacteriology began to provide some answers. Typhoid had become Melbourne's particular curse, but when the typhoid bacillus was identified in 1880 it was realised that the disease spread through contact with the faeces of an infected person. As one of the creeks running into the Yan Yean reservoir carried human wastes from Whittlesea where there were typhoid sufferers, the water itself was the health risk. The decision to divert all sources of polluted water away from Yan Yean, diverting pure mountain water from the Wallaby and Silver creeks along bluestone-lined aqueducts to augment supplies and closing the catchment to all other uses, especially timber-getting, to avoid any pollution, provided the basis for Melbourne's future water supply. It would come from rainwater harvested from closed catchments thereby avoiding the need for filtration or chemical purification.
The Melbourne and Metropolitan Board of Works, established in 1891, was given responsibility for water supply. Initially it concentrated on building sewers but by the early years of the 20th century droughts combined with the continued growth of Melbourne made it clear that new storages would be needed. The elegant concrete Maroondah Dam was completed in 1927, the much smaller O'Shannassy was finished a year later while the earth-fill Silvan, the largest of the three, took until 1932 to complete. This represented a massive increase in Melbourne's capacity to store water but, despite vigorous resistance against attempts to close the catchments in new locations to timber and irrigation interests, planning for new storages was already underway.
World War II delayed any further expansion. For three decades after the war rapid and sustained suburban expansion combined with a new range of water-using consumer goods such as washing machines, dishwashers and swimming pools, as well as larger homes with more toilets and bigger gardens, placed water supply under continual stress. Sometimes taps produced only a trickle of water. There were frequent summer water restrictions that banned garden watering with hose pipes. The completion of the Upper Yarra Dam in 1957 brought only temporary relief because delivery systems could not keep pace with increased demands.
Efforts to reserve future sources of supply again met with strong resistance but the threat of an electoral backlash provoked by water shortages sometimes persuaded reluctant politicians to give Melbourne access to new catchments. The Greenvale and the massive Cardinia storage dams were uncontroversial but a proposal to dam the lower Yarra at Yarra Brae was defeated. In 1981 the Sugarloaf storage supplied by water pumped up from the Yarra at Yering Gorge was opened as a substitute to supply a city threatening to run out of water before the immense Thomson storage could be completed. As this catchment was not closed a treatment plant was required, the first time any water supplied to Melbourne was systematically treated with chemicals. Fluoride had been introduced in 1974 to the dismay of a vocal minority.
The drought of the early 1980s again led to water restrictions but once the Thomson Dam, completed in 1983, had filled it was widely seen to have 'drought proofed' Melbourne. There was, however, the first sustained attempt to manage demand for water. A move towards a 'user pays' system was designed to encourage conservation as was an advertising campaign urging people not to be a 'Wally' with water. Dual-flush toilets, which became compulsory from 1984, and fixed garden watering systems, economised greatly on water use.
For the two decades after the Thomson was completed, Melbourne was well supplied with water, but in the early 21st century demand was once more outstripping supply. With the construction of new dams unlikely, there is growing emphasis on conservation and demand management, as well as on harvesting urban rainfall within residential properties, recycling household grey water, and even treating used water on a large scale for re-use as drinking water in the way that many other cities do.