This study examines the effect of contaminated groundwater usage and the health cost faced by households living in Tehsil Bhalwal district Sargodha. The study was done to determine the quality of groundwater and water supply lines. Water samples were taken from the four different areas of tehsil Bhalwal which are side by side to the wastewater channel of the sugar industry. About seven parameters (four were the Physio-chemical, pH, turbidity, hardness, total dissolved solids (TDS), bacteriological, calcium and magnesium were tested in water reports and their results were compared with the permissible level of World Health Organization guidelines for drinking water. The Turbidity ppm silica unit, TDS, total hardness mg/l, total alkalinity mg/l, sulfate mg/l, chloride mg/l, iron mg/l, and fluoride mg/l in reports are objectionable. To study the impact of contaminated water the required information is obtained through primary collection of data and questionnaires have 200 sample sizes of households and which generates 912 observations for our analysis. Results indicate that 2 percent of groundwater was used by the household for drinking and cooking respectively. Only 52 percent and 60.5 percent household uses tap water for drinking and cooking purpose respectively. While 40 percent of households use bottled water for drinking purposes and 30 percent take bottled water for cooking. Applying logit model for the diseases and OLS regression for the health cost estimation, the study finds, that the use of poor water quality for drinking, cooking, bathing, and washing increases the probability of getting a disease like jaundice, skin, and diarrhea which ultimately increases the health cost of the households. From results, it is concluded that households that are using groundwater and tap water suffer more from different illnesses as compared to the households which are using bottled water and their cost of illnesses is increasing as the number of visits to the doctor for medication goes up. Most of the respondents reported Jaundice, Skin, and Diarrhea as the main diseases. The study recommends establishing a cemented wastewater canal of sugar industry effluents and establish and repair existing water filtration plants to provide safe water. Supervisor:- Dr. Rehana Siddiqui