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Israel is one of the world’s leaders in agricultural re-use of wastewater, currently re-using over 60% of produced wastewater. The effects of arid climate, intensive irrigated agriculture and limited water resources make re-use necessary to conserve fresh water for domestic use. Quality standards for wastewater re-use are needed to protect public health and prevent environmental and agricultural damage. This paper examines the environmental and economic sustainability of the proposed upgrade of wastewater quality standards. A tertiary treatment standard was proposed, but has not been approved due to objections from local authorities and farmers. An upgrade will require higher treatment costs, which will be divided between farmers and local authorities through the pricing of the wastewater. Farmers oppose the upgrade because they will not be able to pay higher prices for wastewater, which they use to irrigate low-profit crops. If the price is too high, these farmers may be forced out of business and a substantial reduction in cultivated lands may result. If the price is too low, the poorer local authorities may not be able to comply with the standards, and may discharge improperly treated wastewater, causing environmental damage. A successful policy balances the needs for environmental protection with the economic realities of farmers and local authorities and may require compensation for local authorities or farmers in order to achieve maximum environmental protection.