Urbanization confronts the dual challenges of water scarcity and environmental degradation, prompting the exploration of diverse water sources for mitigating these impacts. Inter-basin water transfer (IBWT) has emerged as a solution to balance urban water demand and supply in areas with local water shortages. While IBWT can deliver high-quality water over long distances, it is costly, often contributing significantly to carbon emissions. Reclaimed water use (RWU) presents a promising alternative to address this dilemma. In this paper, a valley region of Chongqing municipality in Southwest China, which is confronted with water and environmental risks resulting from rapid urbanization, was explored and discussed as a case study to assess the potential impact of RWU on reducing carbon emissions as compared to IBWT. A method of accumulative accounting was adapted to calculate and sum up carbon emission intensities at various stages, revealing that the operational carbon emission intensities of IBWT and RWU are 0.7447 KgCO2/m3 and 0.1880 KgCO2/m3, respectively. This indicates that RWU substitution can reduce carbon emissions by 0.5567 KgCO2/m3 or 75%. This paper further elucidates the mechanism behind carbon emission reduction, highlighting the energy-saving benefits of using reclaimed water locally without recourse to extensive transportation or elevation changes. Additionally, this result presents three scenarios of reclaimed water use, including urban miscellaneous water, river flow replenishment, and agricultural irrigation in relation to their substitution effects and environmental impacts. Estimates of carbon emission reductions from reclaimed water use were projected at the planned scale, with the maximum potential of reclaimed water utilization predicted. Finally, this paper proposes an enhanced strategy to identify and prioritize factors affecting reclaimed water utilization and the effect of carbon emission reduction. This paper aims to facilitate the establishment of a robust legal, institutional, and managerial framework while fostering interdisciplinary and cross-sectoral cooperation mechanisms in valley urban areas. The methodology employed can be universally applied to other regions grappling with severe water stress, thereby facilitating endeavors toward carbon reduction and contributing significantly to the attainment of water sustainability.