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Western societies have developed three approaches to governance of common pool resources such as water: 1) The division of the resource into private property; (2) government regulation; and 3) local self-organization. This article asserts that all three are needed in varying combinations to rise to the challenge presented by the impact of climate change on water supply and demand. Drought presents a preview of potential future climate scenarios and Australia and the western United States are both responding to its harshness through innovation in water governance. These experiments present an opportunity to compare the approaches of Australia and the western United State to begin to understand the combination of governance approaches that lead to greater adaptive capacity.