Tamworth can sort through it's water challenges with a combination of water recycling and a "base-load" of extra storage at the new Dungowan dam, the water minister said.
The Peel is "one of the most stressed water valleys in NSW," minister Melinda Pavey said on Friday.
She threw her support behind an innovative CSIRO trial for industrial use of recycled water, after a meeting with Tamworth Regional Council last week.
Recycling is "the way of the world," she said.
"Given that such a large part of the town's water supply - 50 per cent every day is going to industry - that's a great thing, but it's a lot of water, and if we can look at other creative ways of doing it on top of expanding Dungowan Dam it's a great idea."
It's not the first recycling endeavor in the region and previous efforts have been hampered by bureaucratic inefficacy.
Namoi Unlimited Chairman Mayor Chaffey told the Leader last year "ridiculous" and "embarrassing" bureaucracy had hindered the use of recycled water in thirsty road construction projects.
Asked if government intended to sort the problem out, Mrs Pavey said the Tamworth bottleneck was also an issue of finances.
"You need equipment to do it and that needs money," she said.
But it's not the only hold-up.
"To be able to have full recycling is going to require some pretty big conversations between the council, industry and the state government. It's important that conversations can be had in a civil and mature way," she said.
"And that's why we're here.
"That's why this state government, thanks to Kevin Anderson and his very strong voice, is here able to support this community.
"I think we're all wanting to go in the same direction and we all just need to start rowing in exactly the same direction."
The minister also revealed the Peel's Regional Water Strategies are to be completed, after consultation, "within the next few months".
Tamworth Regional Council has asked a number of questions through the regional water strategy, she said.
Mrs Pavey also announced the city will receive enough water allocation from the new Dungowan Dam to sustain a city of 120,000 people, with about 7 gigalitres set aside for town use.