In Malaysia, upland watersheds support more than 2,500 small community rural water supply schemes. Almost 90% of the projects were implemented by the Malaysian Ministry of Health. This paper presented the physical, technical, economic and social aspects in the planning of a small rural water supply scheme in a village of about 1,320 inhabitants. The source of data for this study was obtained from questionnaire, interviews, and direct field sampling. Environmental problems related to water quality and sustainable flow of water during peak demand were identified to be the major one even though the system is technically efficient. Effective watershed management strategies and future rehabilitation work in the water supply system were proposed.