The Millennium Ecosystem Assessment has generated greater official recognition that ecosystems provide valuable services to humankind. For example, watersheds provide water supply and water purification services by acting as primary receivers of rainwater and channeling water flows within water basins. Traditional economic markets however fail to capture the full value of such services, limiting the effectiveness of market-based projects for improved natural watersheds management. Market-based instruments can help to rationalize the benefits provided by ecosystems against the cost of natural resource conservation, but only when encompassing the full range of ecosystem services provided. The Chuho springs watershed in Kisoro District, Uganda presents an example of upstream land degradation due to intensive agricultural practices. Such upstream land degradation results in a lowered water supply to downstream users. The objective of this study is to assess the potential for the establishment of a payment for ecosystem services (PES) approach, with downstream water users paying upstream land users for improved water supply. Such a PES approach would ensure that upstream land users have an incentive to adapt their agricultural practices so as to allow for an improved water supply downstream and indirectly contributing to reduce upstream land degradation. This assessment is based on responses from focus groups with respondents selected from official local project documents and population registers. Trends and patterns are identified in the group discussions after coding and frequency analysis. While the study revealed clear potential for PES establishment, the fragmented landscape and historical lack of collaboration between the upstream and downstream communities would hinder successful implementation. A possible solution could be to use intermediaries to represent each group. Such a set up would have upstream land users selling improved practices, possibly through NGOs already working with the users acting as intermediaries, to only one buyer representing downstream consumers such as the National Water and Sewerage Corporation. IAEA Chuho Springs, located north of Kisoro town in southwestern Uganda, are being tapped as a local water supply.