Abstract: China suffers from a host of environmental problems which have worsened over the past three decades of economic reform. Non-point source pollution in freshwater has become a striking issue around the country. The objectives of the research were to explore the knowledge and perceptions of the residents about non-point source pollution and community-based watershed management policies within Nansihu Lake watershed of China, their attitudes toward non-point source pollution control and watershed management, the amount of their willing to pay for water quality improvement, the differences among different groups of the residents regarding their knowledge, perceptions, attitudes towards non-point source pollution and watershed management policies, and their willingness to pay for improving water quality, and finally, the socio-economic factors affecting the residents' willingness to pay. The results indicated that the residents in Nansihu Lake watershed had low level of knowledge and perceptions of non-point source pollution, eutrophication, and community-based watershed management policies. Their attitudes toward non-point source pollution control were very positive. There was no direct cause and effect between respondents' knowledge and their attitude. With the combination of two major CVM formats, the survey results indicated that the urban respondents' median WTP was [CNY]157.5 (U.S. $19.69), while suburban and rural respondents' median WTPs were [CNY]100 (U.S. $12.5) and [CNY]50 (U.S. $6.25), respectively. The total amount of WTP per year in Nansihu Lake watershed was estimated to be [CNY]562.63 million (U.S. $70.33 million). The survey revealed that residents' yearly income and geographic locations were the main factors affecting residents' willingness to pay for non-point source pollution control in this area. Overall, there was no significant difference between urban and suburban residents in their knowledge, perceptions, and attitudes, but rural residents were significantly different from the two groups above. The research implied that 1) it is imperative for the local government to encourage residents to formulate community-based watershed management groups in Nansihu Lake watershed, China, 2) improving local economy and residents' income, increasing environmental education input, and enhancing residents' environmental awareness would be an effective approach for improving water quality in Nansihu Lake watershed.