Darchen in Tibet is a small town situated at the foot of the holy mountain Kailas, which lies near the source of five of Asia’s most significant rivers. The town has been expanding steadily over the last decade through the growing influx of pilgrims and tourists, which is expected to increase exponentially in the next few years. Concomitant economic growth is causing significant lifestyle changes for the population of Darchen. However, the town, situated in a semi-arid region, is already facing serious environmental issues due to a lack of water and sanitation infrastructure. Problems include inadequate supply of drinking water, water pollution, lack of waste water and solid waste management, rubbish dumping, etc. Further, the inhabitants of the town face a number of health issues, which may be partially related to inadequacy and pollution of drinking water. The aim of this study is to analyze the relation between water management and health issues, and to identify urban design solutions which may be appropriate to tackling the water management problem. The premise is that an analysis of health issues may visualize to policy and decision makers the advantages of urban infrastructure investment enabling adequate and clean drinking water supply in Darchen. Further, the research can serve to inform Eco-town models for the future development of other towns in the same region.