It is a major supplier of surface and ground water for residential, commercial and agricultural use in New Mexico. In 1938, Colorado, New Mexico, and Texas signed the Rio Grande Compact apportioning the waters of the Rio Grande above Fort Quitman, Texas, among the three states.

The Rio Grande is a critical water source for three U.S. states: Colorado, New Mexico, and Texas. The river originates in the San Juan Mountains of southern Colorado, where it provides essential water for the agricultural San Luis Valley. It then flows south through the entire length of New Mexico, serving major urban centers like Albuquerque and supporting the "Acequia" irrigation systems that have been used for centuries. Finally, it forms the international boundary between Texas and Mexico. In Texas, the water is vital for the El Paso region and the heavily agricultural Lower Rio Grande Valley. In 2026, the distribution of this water remains a contentious legal issue governed by the Rio Grande Compact of 1938, an interstate agreement that dictates how much water each state is entitled to based on flow levels. Additionally, the 1944 Water Treaty between the U.S. and Mexico governs the international sharing of the river. Chronic drought and overallocation have led to significant litigation in the Supreme Court (specifically Texas v. New Mexico), as each state fights to secure its share of the diminishing flow for their growing populations and farming industries.