The sustainable delivery of basic services continues to be an elusive goal for water and sanitation operators in developing countries. In Honduras, both centralized and decentralized providers of water and sanitation coexist simultaneously, providing an opportunity to compare the effectiveness of each approach amid similar constraints. This analysis uses ten variables that measure access, efficiency and sustainability, in comparing the experiences of 16 potable water systems in small- and medium-sized cities, operated by centralized and decentralized water authorities. While neither approach provides a single, integrated model of a best practice, overall the decentralized systems demonstrate better practices than their centralized counterparts. Decentralized potable water systems systematically outperform centralized ones in financial efficiency and in their ability to increase coverage of basic services over time. In large part, the decentralized systems’ better practices have been motivated by institutional arrangements that promote political accountability to customers and provide incentives for sustainable management practices. Decentralized operators continue to face challenges, namely the need to apply economic principles in designing tariff regimes and implementing management practices to account for capital depreciation. Despite these challenges, however, this analysis demonstrates that decentralized systems are not only viable in developing countries, but also tend to provide better service than those systems operated by a centralized authority.