In recent years there has been considerable interest in the use of economic instruments to address environmental problems. The economic theory indicates that market-based instruments offer significant cost savings over current regulatory approaches with the same level of environmental protection. In the context of water pollution, the two most commonly suggested instruments are tradeable permits and emission charges. This article commences with a brief overview of the theory underlining these instruments. It then reviews the Australian experience of applying market instruments to water pollution. A discussion of the limitations of these instruments follows which refers to the debate over the application of market-based approaches from ecological and economic perspectives. As a result of these limitations, it is argued that comprehensive load-based emission charges for point sources of water pollution and offset trading schemes for some diffuse source pollutants offer the most potential.