The pipeline direct drinking water system (PDDWS) has emerged to ensure the quality of direct drinking water. Nevertheless, the existing literature suggests that the PDDWS suffers from inherent structural technological deficiencies, and various internal and external factors hinder its reliability, which raise concerns about the scientific and rational basis of the PDDWS. To address these issues, a new-type terminal differentiated water system (TDWS) is proposed to establish an efficient and health-oriented household water supply system. A water purifier is directly installed at the user’s terminal, and, due to its diversion process, differentiated water is provided, including direct drinking water, clean water and flushing water. Direct drinking water can be produced on demand, without secondary contamination. Clean water is also not stored, thus preventing microbial growth and ensuring superior water quality compared to tap water, suitable for kitchen usage. Flushing water is mixed with tap water for laundry, bathing and toilet flushing. Engineering verification has demonstrated that the quality of the direct drinking water and the clean water exceeds national standards. With the diversion process, the TDWS exhibits benefits related to health, the economy, applicability and environmental friendliness, and it can serve as a supplement and innovation for the PDDWS.