As the consequence of climate change, water that is received in Australian Murray-Darling Basin wetlands is declining and agricultural water demands are increasing. In order to keep the water use balance between environment protection including wetland protection and irrigation water use, the Australian government adopted a series of reforms in Murray-Darling Basin to address the environmental water shortage problem and encourage irrigators to use water more efficiently and plant high economic value crop. The water trading and cap are two major reforms in this process.In order to match up the environmental water demand such as wetland water use, based on the seasonal rainfall, dam level and environmental water demand, the cap system seasonally allocate how much water the irrigators can access as per water licenses. As the cap dramatically reduced the water access for irrigators, the water trading is aiming to use limited agricultural water more efficiently. The water trading scheme separate the water use right from the land property right and allow Australian farmers to trade their water licenses in the market. Water trading encouraged farmers who plant low value crops such as wheat and canola transfer their water entitles to farmers who plant high value crops such as grape. In the drought seasons, The Australian government can purchase the water licenses from irrigators to increase the environmental flows.This Australian water management system represents the most complicated and effective environmental and agricultural water use management in this world. There are possible many lessons that will help China to better manage the water use for wetland protection and farming practices.