The Murray-Darling Cap is a policy limiting the water diversions in the Murray-Darling Basin (Australia) at 1993 levels. It seeks to strike a balance between the amount of water available to irrigators and the security of their water supply. At the time of conception in 1997, the level of diversions from the Basin was clearly nearing unsustainable levels. The Cap was introduced by the Murray-Darling Basin Ministerial Council after the release of the report titled "An Audit of Water Use in the Murray-Darling Basin".
The Murray-Darling system is a highly variable system in terms of inflows, and can vary between discharges of 1,600 GL and 53,000 GL. The average flow is 21,200 GL per year. In the six years prior to 1994 an average of 10,800 GL had been diverted, mostly for agricultural purposes. The diversion were having a significant impact on the ecological health of the Murray-Darling river system.
The Cap limits surface water diversions at 11,000 GL per year. Seasonal adjustments are made for wet and dry years. The introduction was seen as the first step in water management methods that progressed towards sustainable development of the river system. The aim of the cap is: "To ensure the long-term health of the rivers by returning more water to the river for environmental purposes". The Cap affects all rivers located within the Murray-Darling Basin. As it was implemented in 1997 but capped at 1993 levels, the irrigators lost an amount of water. The cap made water in the Basin a more valuable resource, which gave entitlements to its diversion more value and saw increased trade in these entitlements. While the Cap restrains further increases in water diversions, it does not constrain new developments, provided the water for them is obtained by using water more efficiently or by purchasing water from existing developments.