With the expansion of urbanization, the scientific and reasonable evaluation of the efficiency of urban water supply systems is crucial for advancing the water supply industry toward high-quality development. The water supply industry faces challenges such as water shortages, stricter water quality standards, and the need for improved service quality. To comprehensively assess the effectiveness of urban water supply systems, developing and refining an indicator system that accurately reflects their efficiency is essential. This paper explores the evaluation system for the performance and efficiency of water supply systems in China over the past decade. It combines the current development status of the water supply industry and constructs an efficiency evaluation indicator system for urban water supply systems from five dimensions: operational efficiency, supply quality, safety management, service efficiency, and comprehensive benefits. Through a systematic analysis and screening of various indicator types, the system includes 31 evaluation indicators identified based on the principles of comprehensiveness, representativeness, and scientificity. The Analytic Hierarchy Process (AHP) is used to assign weights to the indicators, ensuring the scientific and rational nature of the evaluation results. Evaluation scores classify water supply system efficiency into four levels: excellent, good, qualified, and unqualified. A demonstration application of the water supply system efficiency evaluation was conducted in four typical enterprises, and data was collected and analyzed. The results showed that the evaluation grades were excellent, good, excellent, and good, respectively. These efficiency evaluation results generally align with feedback from on-site research experts, verifying the feasibility of the assessment method and its ability to accurately reflect the operational status of water supply companies, while also highlighting each company′s shortcomings. The evaluation results enable water supply companies to identify shortcomings and implement corresponding improvement measures, thereby enhancing overall effectiveness. Evaluating water supply system effectiveness is crucial for improving quality and efficiency in water supply companies, promoting high-quality construction, and ensuring the sustainable development of the urban water supply industry. This study provides an important reference and guidance for the development of the urban water supply industry through scientific evaluation and improvement measures.