Dubbo Regional Council is taking "legislative steps" required to move recycled effluent from Dubbo Sewage Treatment Plant into the city using the yet-to-be-built cross-city pipeline.
The council's director of infrastructure Julian Geddes has advised of work underway to update its recycled water management plan and prepare an environment impact statement.
The director also confirmed the need to buy new equipment.
"In order for the treated effluent to be used on recreational spaces and for other purposes, it will undergo an advanced wastewater-treatment process," he said.
"This process will involve the purchase and installation of specialised plant and construction of an additional reservoir.
"Also critical, legislative steps, such as updating the existing recycled water management plan, and undertaking an environment impact statement in support of the required statutory approvals, of which the process for both is currently underway."
The recycled effluent is set to replace untreated groundwater which will then be moved to the John Gilbert Water Treatment Plant.
A $30 million state government grant is covering the costs of the council's Water for the Future Strategy projects.