Individuals subjectively interpret the relationship between the social and physical environments and between themselves on the basis of values and beliefs regarding the proper relationship between these environments. It is on the basis of these interpretations that individuals act when confronted with a proposed environmental change. In this manner, social impacts are frequently created. A case study of a small, agriculturally based community that experienced a sizeable transfer of water from agriculture to energy production is discussed within the context of this perspective. It was evident that competing and conflicting interpretations of the proper relationship between the social and physical environments produced social action, which resulted in social impact. We recommend that social impact assessment investigate the different values and belief systems within a community as these relate specifically to the physical environment and to the subjective interpretations of environmental change that shape social action.