A DISSERTATION SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN ENVIRONMENTAL AND NATURAL RESOURCE ECONOMICS OF SOKOINE UNIVERSITY OF AGRICULTURE. MOROGORO, TANZANIA.Water is one of the scarce resources very important for the development for humankind hence efficient allocation is needed. Economically, efficient allocation of water is desirable to maximize the welfare of the society that obtains from available sources. The rural population water supply services have been left behind which increase with domestic water demand. There are some initiatives in Moshi Rural District to establish some water projects so as to solve the problem of water scarcity. There was a need to know the efficiency of domestic water allocation for the case of Kirua-Kahe because relatively little is known about the service and satisfaction of customers. There are three specific objectives in this study which are to evaluate the domestic water allocation of Kirua-Kahe Water Project in Moshi Rural District, to determine the domestic water allocation efficiency in Kirua-Kahe Water Project and to examine the effectiveness of Kirua-Kahe domestic water allocation in Moshi Rural District. Cross section or survey design was used with both quantitative supplemented with qualitative approach to present results. Methods for data collection involved primary and secondary sources through interviews, questionnaires and direct observations. Findings show that Kirua-Kahe uses Gravity and Pumping systems for supplying water. Gravity water supply system has 8 working intakes, 2 boreholes while Pumping water Supply system consists of 15 small pumping schemes being pumped from boreholes and 1 spring. Until January 2015, Kirua-Kahe Gravity had a total of 5 403 customer connections and 401 customer connections for Kirua-Kahe Pumping. Customers are Public, Homes, Social Institutions and Commercial connection through pricing system. The economic efficiency was carried out based on analysis of usage and collection efficiency and all constraints and optimality conditions were satisfied. Further research and more water projects is needed, to design service delivery models, technological innovations and education.