Lake Erhai is the main water source for Dali City and the surrounding area. Economic development and population growth have caused serious environmental problems in the Lake Erhai basin. The annual water shortage in the basin and surrounding areas is about 324.95 million m3. It is estimated that, by 2020, water consumption in the region will increase by 172 million m3, of which 96 million m3 will be used in Dali City alone. It is clear that the imbalance between the water supply and demand in the Lake Erhai basin will rapidly increase. In addition to water shortage, Lake Erhai also faces serious eutrophication and water quality deterioration. According to a survey in 2002, the pollutant loads of Lake Erhai were: CODCr 3008 t/a, TP 137.31 t/a and TN 1426.35 t/a. The nitrogen (TN) and phosphorus (TP) loads of the lake were far above its environmental capacity. Lake Erhai is now in a pivotal, critical and hypersensitive period of trophic state change. In order to address these problems, sustainable utilisation countermeasures, such as reducing industrial and agricultural water consumption, optimising the distribution and allocation of water resources, and ecological protection measures to control eutrophication are suggested.