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Fossil energy production not only aggravates water depletion but also severely contaminates water resources. This study employed a mixed-unit input–output model to give a life cycle assessment of national average water degradation in production of common types of fossil fuels in China. The results show that the amount of grey water generated is much more than that of consumptive and withdrawn water in all cases. Although there is a high discharge amount of chemical oxygen demand (COD) in fossil fuel production, the pollutants of petroleum (PE) and volatile phenols (VP) require more dilution water than COD. PE is the greatest contributor to water degradation caused by primary fossil fuels, while VP pollution is prominent in production of upgraded fossil fuels. Basically, the main causes of water degradation, PE and VP discharge, occurs at coal mines, oil fields, refinery plants, and coking factories, rather than in the upstream sectors. A scenario analysis showed that water pollution can be significantly reduced if VP discharge in the coking process is controlled to be at the standard concentration. PE requires a standard withalower discharge concentration in order to further mitigate water pollution in production of fossil fuels. The coal production industry has a much lower pollutant removal rate but spends more on wastewater treatment, up to 12% of its profit. The other fossil fuel industries have high removal rates of PE and VP (97%–99%) and thus demand technological renovation to further remove those pollutants at a low concentration.