This paper analyses the determinants of households' willingness to pay (WTP) for quality water supply, using the contingent valuation method (CVM). The study was conducted with randomly selected households in the factory villages of Wonji Shoa Sugar Estate, Ethiopia. The value elicitation method used is a close ended format questionnaire with additional close ended format, and open ended follow up questions which is closer to the market scenario respondents are familiar with. The empirical model used in this study is the Tobit model. The result of the study revealed that income of the household, education level of the respondent, reliability on existing water supply, respondent perception about quality of the existing water supply, household family size and age of the respondent are significant variables that explain WTP. The mean WTP for quality water supply is found to be $0.025 per 20 litres which is well above the current tariff rate of the Oromiya regional government in Ethiopia.