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In this research, the impact of several water conservation policies and return flow credits on the fate of water used outdoors in an arid region is evaluated using system dynamics modeling approach. Return flow credits is a strategy where flow credits are obtained for treated wastewater returned to a water body, allowing for the withdrawal of additional water equal to the amount returned as treated wastewater. In the return credit strategy, treated wastewater becomes a resource. This strategy creates a conundrum in which conservation may lead to an apparent decrease in water supply because less wastewater is generated and returned to water body. The water system of the arid Las Vegas Valley in Nevada, USA is used as basis for the dynamic model. The model explores various conservation scenarios to attain the daily per capita demand target of 752 l by 2035: (i) status quo situation where conservation is not implemented, (ii) conserving water only on the outdoor side, (iii) conserving water 67% outdoor and 33% indoor, (iv) conserving equal water both in the indoor and outdoor use (v) conserving water only on the indoor side. The model is validated on data from 1993 to 2008 and future simulations are carried out up to 2035. The results show that a substantial portion of the water used outdoor either evapotranspires (ET) or infiltrates to shallow groundwater (SGW). Sensitivity analysis indicated that seepage to groundwater is more susceptible to ET compared to any other variable. The all outdoor conservation scenario resulted in the highest return flow credits and the least ET and SGW. A major contribution of this paper is in addressing the water management issues that arise when wastewater is considered as a resource and developing appropriate conservation policies in this backdrop. The results obtained can be a guide in developing outdoor water conservation policies in arid regions. (C) 2011 Elsevier Ltd. All rights reserved.