This study is an investigation of the quality of drinking water used by the communities of Bungamati, a rural town of Kathmandu Valley, Nepal and of local knowledge of water quality and water borne diseases. We tested the drinking water used by the communities and then assessed their knowledge of water quality and water borne diseases. The results show that the physical and chemical parameters of the sample water of different water sources lie within the World Health Organization guideline values. The values of the bacteriological parameters such as coliform bacteria and Escherichia coli are such that the drinking water is not potable in terms of bacteriological point of view. We found that communities are unaware of the contaminants in their drinking water. Incidence of water borne diseases appears to be the common health problem among the sample households in the study area. It is found to be more serious during the dry season. Open defecation is still one of the common sanitation problems of the area. The local communities have been made aware of solar disinfection for water disinfection.