Cryptosporidium and Giardia infections can negatively impact livestock health and reduce productivity, and some species and genotypes infecting livestock have zoonotic potential. Infection occurs via the faecal-oral route. Waterborne infections are a recognised source of infection for humans, but the role of livestock drinking water as a source of infection in livestock has not been described. This study aimed to determine whether contaminated drinking water supplies, such as farm dams, are a likely transmission source for Cryptosporidium and Giardia infections for extensively managed sheep. Dam water samples (n = 47) were collected during autumn, winter and spring from 12 farm dams located on six different farms in south west Western Australia, and faecal samples (n = 349) were collected from sheep with access to these dams. All samples were initially screened for Cryptosporidium spp. at the 18S locus and Giardia spp. at the gdh gene using qPCR, and oocyst numbers were determined directly from the qPCR data using DNA standards calibrated by droplet digital PCR. Cryptosporidium-positive sheep faecal samples were typed and subtyped by sequence analysis of 18S and gp60 loci, respectively. Giardia-specific PCR and Sanger sequencing targeting tpi and gdh loci were performed on Giardia- positive sheep faecal samples to characterise Giardia duodenalis assemblages. To identify Cryptosporidium and Giardia spp. in dam water samples, next-generation sequencing analysis of 18S and gdh amplicons were performed, respectively. Two species of Cryptosporidium (Cryptosporidium xiaoi and Cryptospordium ubiquitum (subtype family XIIa)) were detected in 38/345 sheep faecal samples, and in water from 9/12 farm dams during the study period, with C. xiaoi the species most frequently detected in both faeces and dam water overall. Giardia duodenalis assemblages AI, AII and E were detected in 36/348 faecal samples and water from 10/12 farm dams. For dam water samples where oo/cysts were detected by qPCR, Cryptosporidium oocyst concentration ranged from 518–2429 oocysts/L (n = 14), and Giardia cyst concentration ranged from 102 to 1077 cysts/L (n = 17). Cryptosporidium and Giardia with zoonotic potential were detected in farm dam water, including C. ubiquitum, C. hominis, C. parvum, C. cuniculus, C. xiaoi, and G. duodenalis assemblages A, B and E. The findings suggest that dam water can be contaminated with Cryptosporidium species and G. duodenalis assemblages that may infect sheep and with zoonotic potential, and farm dam water may represent one source of transmission for infections.