Recent research suggests that insecure access to key resources is associated with negative mental health outcomes. Many of these studies focus on drought and famine in agricultural, pastoral, and foraging communities, and indicate that food insecurity mediates the link between water insecurity and emotional distress. The present study is the first to systematically examine intra-community patterns of water insecurity in an urban setting. In 2004-2005, we collected interview data from a random sample of 72 household heads in Villa Israel, a squatter settlement of Cochabamba, Bolivia. We examined the extent to which water-related emotional distress is linked with three dimensions of water insecurity: inadequate water supply; insufficient access to water distribution systems; and dependence on seasonal water sources, and with gender. We found that access to water distribution systems and female gender were significantly associated with emotional distress, while water supply and dependence on seasonal water sources were not. Economic assets, social assets, entitlements to water markets, and entitlements to reciprocal exchanges of water were significantly associated with emotional distress, while entitlements to a common-pool water resource institution were not. These results suggest that water-related emotional distress develops as a byproduct of the social and economic negotiations people employ to gain access to water distribution systems in the absence of clear procedures or established water rights rather than as a result of water scarcity per se.