This paper undertakes a state-of-the-art review of developments in water markets around the world, focusing on their implications in efficient allocation and use of scarce water resources. The findings indicate that while a lot of research exists on the use of water market tools for improving resource allocation or economic efficiency in the agriculture sector, not much is known about the impacts of similar market tools on water allocation, and consumption patterns among urban consumers. Working on this gap, the paper examines how water market principles may be applied to benefit urban water resource management to induce better service delivery while encouraging water resource conservation.