Under new democratic regimes in the countries of the Global South, governance innovation is often found at the regional level. This article, using the concept of institutional capacity, shows that powerful efforts affecting regional water resource coordination emerge locally. The article analyses fresh water cooperation in the urban region of Cirebon, Indonesia. It is shown that the city and its surrounding regions in decentralising Indonesia show signs of increasing institutional capacity between local actors. An informal approach and discretionary local decision-making, influenced by the logic of appropriateness and tolerance, are influential. At the same time, these capacities are compromised by significant inequality and a unilateral control of water resources, and they are being challenged by a strong authoritarian political culture inherited from a history of centralised government. The article points to the need to establish greater opportunities for water governance at the regional level to transcend inter-local rivalry, and thus improve decentralised institutional capacity further.