The article shows the most significant problems of functioning and development of the water economy of the Republic of Dagestan—the southernmost region of Russia. The results of a comprehensive analysis of the state of the waters of the Caspian Sea, the main pollutants of which are coastal cities and other settlements with their wastewater and other waste from human activities, are presented. Ecological problems of Dagestan rivers and reservoirs are considered. The necessity of restoring the natural state of the Terek River Delta, in particular the ecological rehabilitation of its estuarine streams and lakes, is emphasized. Special attention is paid to the task of stopping the uncontrolled economic development of reservoirs of mountain hydroelectric power plants—the main drinking water resources for the cities of Dagestan. The medical and hygienic condition of water supply sources is discussed with an emphasis on the serious problem of contamination of groundwater used for drinking purposes. The issues of water supply and sanitation (non-centralized, centralized, departmental and communal) are considered in detail. It is indicated that urban and district centralized water supply systems do not comply with sanitary and hygienic standards, and there is an extreme shortage of sewage treatment plants in almost all cities of the Republic. The progress of the implementation of a number of federal programs to improve the water supply systems of the population of the Republic is described.