Rising scarcity of water is a significant problem faced by the village tank farmers living in the dry zone of Sri Lanka. This study attempts to identify institutional and policy solutions that can provide sustainable answers for problems faced by the village tank farming community due to rising scarcity of water in the face of pending uncertainties relating to climate changes. It further identified that physical scarcity is only one aspect of the problem which is closely involved with more contentious issue of institutional limitations. The study was conducted in the Anuradhapura district in the North Central Province, using participatory methods of focus group discussions and key informant interviews as well as secondary data collected from various sources. The study reveals that recent changes in population growth, government policies, commercialization of local economies, and modernization of agriculture technology, have radically altered the sustainable traditional system favouring privately oriented, resource intensive commercial farming system.