This study attempts to investigate awareness level of the households (HHs) about clean drinking water and adequate sanitation in Bhara Kahu, Islamabad. The study further assessed HHs willingness to pay (WTP) for improvement in water quality and sanitation system on the basis of their socio-economic characteristics. For the study 150 Households were randomly selected. The data was obtained through structured questionnaire. Bivariate logistic regression model and ordinary least square (OLS) method were used. The first model was used for assessing awareness about clean drinking water, threat to health and environment from inadequate sanitation. For assessing WTP, OLS method was adopted. The study revealed that female awareness regarding water quality and threat to health and environment was found to be higher compared to males. Further, the study shows that income and education has positive and significant relationship with both awareness about water quality, threat to health and environment from inadequate sanitation system. The relationship of income and education with WTP for improvement in water quality and sanitation system was also found to be positive and significant. On the basis of research work, study recommends that there is a need of encouraging education and improving income of the households, in order to raise their awareness about water and sanitation issues. It will also increase their WTP for improvement in water quality and sanitation system. As, highly educated and high income individuals become more health conscious. Supervisor:-Dr. Usman Mustafa