A community-of-practice (CoP) approach is used to analyze rural water sustainability. In combining CoP with the capability approach (CA), a dichotomy is generated between project goals and project practices and whether they are locally or externally driven. Four possible project scenarios are developed from this framework: empowerment (local goals and practices), apprenticeship (local practices and external goals), assistencialism (external practices and local goals) and determinism (external goals and practices). A novel arrangement of indicators is used that incorporates economic (costs), environmental (natural resources) and engineering (skills) sustainability. A meta-synthesis of 23 Egyptian rural water projects indicates that sustainability potential should optimize environmental and engineering sustainability on one hand, with economic sustainability on the other. The policy implication is that managing a series of village-level water projects at a regional level best achieves both economy of scale and adequate cultivation of local practices. However, such a policy is only possible if national institutions enable decentralized regional governance. If institutions resist decentralization, institutional incentives are likely necessary to ensure a more enabling environment. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment.