Water scarcity is an escalating global challenge, driven by climate change, population growth, and increasing economic demands. Traditional water management systems, built on linear extraction and disposal models, are proving inadequate in addressing the growing mismatch between supply and demand. Water reuse emerges as a promising solution to close resource loops, reduce dependency on freshwater sources, and enhance water security. However, its adoption remains limited due to economic, technical, and social barriers. This study develops a dynamic partial equilibrium model to assess the economic viability of water reuse policies within the Dutch water sector. By simulating multiple scenarios—including centralized and decentralized reuse strategies—the model quantifies their impact on key economic and environmental indicators. The results indicate that large-scale centralized reuse can significantly reduce consumer costs and compete financially with conventional urban water supplies, but only if substantial infrastructure investments and strong political support are secured. In contrast, decentralized reuse systems, though less cost-effective, offer greater flexibility for industrial and agricultural applications, contributing to system resilience. This study provides a comprehensive framework for policymakers and stakeholders to design economically viable water reuse strategies, aligning with circular economy principles to ensure a sustainable and resilient water future.