Since China has the largest population in the world, the available water resources per capita in China are very limited. With the rapid economic development that is currently occurring, the shortage of water resources at the national level has become extremely critical. How to solve the problems due to water scarcity and water pollution has received increasing attention from the Chinese government and various communities. In order to provide a sustainable development environment for 1.6 billion people in the future, the whole country has started to reform urban water resources management systems in terms of related policies, regulations, methodologies, and technologies focusing on improving the efficiency and effectiveness in water use. Urban water quota management has now become a core strategy in developing a water resources governance model for water demand management aiming at establishing a water-saving society. This paper introduces the main stages and the processes of implementing water quota management in China, analyzes the basic principles, and expounds the elements, information foundation, core module and operational model of the urban water quota management system. It has been demonstrated that urban water quota management has made some remarkable contribution not only in transforming the pattern of water mode and strengthening water management enforcement but also in integrating various management methods in saving water and preventing pollution.