The main objectives of this paper are to evaluate the impact of water use efficiency improvement on water value and to estimate the potential of water cost reductions in durum wheat production in Central Tunisia. Results show that significant inefficiencies exist in the sample of farms under investigation. The effects of technical efficiency on marginal values of water applied for irrigation could shift the marginal value of the water curve upwards, thereby raising water value. By operating at full water economic efficiency levels, the sampled farms would be able to reduce their water costs of wheat production by about 42%. Technical efficiency and allocative efficiency levels account respectively for 61% and 39% of the total
water cost reductions. Results of the Tobit model estimation indicate a positive effect of farm size, irrigation sources, membership in water users association, pesticide application, and irrigation scheduling on the economic water efficiency. This suggests that there is a potential to improve production efficiency through enhancement of extension services to the small size farmers, and further encouragement of farmers to adhere to the water users’ associations.