This study estimates income and price elasticities of demand for improved drinking water quality in Peshawar, Pakistan. The estimates indicate that improved water can be described as a necessity but normal and an ordinary and price elastic service. Confidence intervals show however that the classification as a necessity is statistically significant. Income elasticities of willingness to pay for drinking water are estimated. The study finds that income and willingness to pay vary directly and significantly. The elasticity estimates, in general, are greater than zero, but less than unity. The study concludes that improvements in drinking water are more beneficial to low-income groups than for high-income groups.