The water shortages in Jordan have made the urban water problem a central policy issue. The government directed all concerned agencies to develop a short, medium and long-term strategy for addressing the impending water crisis. Water authorities attempt to reduce the demand on fresh water and full cost recovery by using price policies. They increase the price of municipal water many times during the last five years. This study focuses on understanding the nature of household demand for water in Amman-Zarka basin, including estimation of residential demand functions for water by income classes and spatial distribution. The residential water demand function based on cross-section data of 1360 household is estimated using instrumental variables (IV) estimation techniques. The residential water demand is characterized by levels of water demanded in relation to marginal price, rate structure premium, level of household income and other welfare indicators. The results show that the estimated residential water demand elasticity is negative and weakly responsive to price (-0.47) for the basin, (-0.62 for Amman and -0.004 for Zarka. Households with lower incomes responded less to higher water prices than wealthier household groups, not as hypothesized. This mean that the demand function, below certain levels becomes insensitive to increases in price. Household size, level of welfare, education, and number of bathrooms are positively correlated with water demand. Therefore, the low price elasticity of residential water demand suggests that the price mechanism is not appropriate tools for water conservation in a country with a high water scarcity. However, market segmentation, technological change in water device and non-price policies can be used as conservation tools for residential water. Therefore, further development and evaluation of non-price conservation policies for municipal uses of water should be undertaken.