As one of the fastest-growing economies, China faces challenges of improving water utilization and treatment. This study performed the slack-based measure data envelopment analysis (SBM-DEA) which considered undesirable outputs to evaluate water utilization and treatment efficiency of the 30 provinces in the mainland of China and applied the Tapio decoupling elasticity model to examine the relationship between policy implementation and the performance of water utilization and treatment during 2008–2017. The result shows that the northern and northwestern provinces have taken the leading position in the efficiency of water utilization and treatment. The northeastern provinces have largely increased the efficiency but the southwestern provinces have the efficiency declined. Additionally, nearly half of the eastern and central-southern provinces have decreased the efficiency. The decoupling analysis recognized that environmental inspection and the investment in environmental components for new construction projects have a decoupling relationship with water use per capita, COD discharge, and wastewater discharge in most of the provinces, indicating their effective practice in enhancing the performance of water utilization and treatment. On the contrary, the mechanism of environmental impact assessment needs to be advanced to better support the improvement of water utilization and treatment. This study identified the development and the potential improvements of water utilization and treatment efficiency of China on provincial and regional perspectives, and determined the contribution of the selected policy measures to the management of water utilization and treatment, allowing the design of tailored roadmaps to address the regional gaps in water utilization and pollution abatement.