In Nepal, rural water systems (RWS) are classified by practitioners as single-use domestic water systems (SUS) or multiple-use water systems (MUS). In the rural hills of Nepal, subsistence farming communities typically use RWS to support income-generating productive activities that can enhance rural livelihoods. However, there is limited research on the extent of existing productive activity and the factors enabling these activities. This paper examines the extent of water-related productive activities and the factors driving these activities based on a study, undertaken between October 2017 to June 2018, of 202 households served from five single-use domestic water systems and five multiple use water systems in the mid-hills of Nepal. The research found that a majority (94%) of these households engaged in two or more productive activities including growing vegetables and horticulture crops, raising livestock, and producing biogas and Rakshi (locally-produced alcohol), regardless of the system design, i.e., SUS vs. MUS. Around 90% of the households were engaged in productive activities that contributed to over 10% of their mean annual household income ($4,375). Since the SUS vs. MUS classification was not found to be a significant determinant of the extent of productive activity, the households were reclassified as having high or low levels of productive activity based on the quantity of water used for these activities and the associated earned income. A multinomial logistic regression model was developed to measure the relative significance of various predictors of high productive activity households. Five dominant predictors were identified: households that farm as a primary occupation, use productive technologies, are motivated to pursue productive activities, have received water-related productive activity training, and have received external support related to productive activities. Whereas MUS are designed for productive activity, nearly every household in SUS communities was involved in productive activities making them ‘de-facto’ MUS. These results challenge the current approach to rural water provision that views SUS and MUS as functionally different services