Over the last two decades, numerous international conferences and organizations have espoused managing water as an economic good, involving participatory forums in systems of decentralized management at the river‐basin level. In the 1990s, Brazil adopted such a model. More than a simple transfer of power from the national to the local level or from bureaucratic to deliberative decision‐making, however, this process requires multi‐directional power transfers among a variety of policy arenas and actors and among national, state, municipal and river‐basin institutions, as well as a complex — and ongoing — negotiation over the meanings of both water pricing and participation. Focusing on the politics of reform legislation in the state of São Paulo and nationally, the article examines how political‐institutional features of federalism and executive‐legislative relations constrained the passage of reform legislation, and how pro‐reform actors attempted to surmount such institutional limitations with networking strategies and by fostering incremental changes in practices on the ground.