A WHO and UNICEF joint report states that in 2008, 884 million people lacked access to potable drinking water. A life-cycle approach to develop potable water systems may improve the sustainability for such systems, however, a review of the literature shows that such an approach has primarily been used for urban systems located in resourced countries. Although urbanization is increasing globally, over 40 percent of the world’s population is currently rural with many considered poor. In this paper, we present a first step towards using life-cycle assessment to develop sustainable rural water systems in resource-limited countries while pointing out the needs. For example, while there are few differences in costs and environmental impacts for many improved rural water system options, a system that uses groundwater with community standpipes is substantially lower in cost that other alternatives with a somewhat lower environmental inventory. However, a LCA approach shows that from institutional as well as community and managerial perspectives, sustainability includes many other factors besides cost and environment that are a function of the interdependent decision process used across the life cycle of a water system by aid organizations, water user committees, and household users. These factors often present the biggest challenge to designing sustainable rural water systems for resource-limited countries.