Water resources management is a crucial activity due to climate change concerns and increasing water scarcity. The increase of water storage by building new artificial reservoirs is one of the most common solutions to fulfill the community’s needs for potable water, energy, irrigation, and prevention of flood risk. The siting of the reservoirs is usually assessed based on topographical and hydrological considerations. However, there are additional crucial factors, often disregarded in common engineering top-down design approaches, that should be considered to determine suitable locations, such as bio-physical, socio-economic, regulatory, and environmental factors, especially where there are competing interests in the use of territory. Involving the communities in the initial stages of the decision-making process is therefore crucial. In this work, we present a methodology, based on multi-criteria decision-making analysis (MCDA), for identifying the optimal locations for new reservoirs while simultaneously addressing all the aforementioned factors through community engagement. The presented method aims at overcoming two major challenges in existing works, i.e., retrieving quantitative information from the participatory approach and going beyond standard hydro-morphological suitability of a dam site. In a first step, an algorithm assesses a large number of sites using a Digital Elevation Model (DEM). Then, MCDA is conducted to rank all potential locations. The selection criteria are defined quantitatively, based on a territorial analysis combined with hydrological modelling. The criteria include: geometric and morphological aspects (reservoir volume, etc.), hydrological indicators (water balance, potential flood mitigation), anthropization (population, infrastructures, etc.), landscape, archaeological heritage, ecology, environmental components and natural hazards. A web-based survey tool based on the pairwise comparison is developed to engage the community in the decision-making process, allowing them to express their perspectives on the relative significance of each criterion. The application of this methodology is demonstrated through a case study in the Pesa river watershed, Italy, showcasing its effectiveness in identifying the most suitable reservoir locations while targeting the highest environmental preservation and community acceptance. The results show that sole engineering criteria might not reflect the sensibility of the community and that variations of the size of the dam can lead to distinct trade-offs between costs and benefits where interference with impact elements occurs.