Water situation in the drought-prone Barind Tract in the north-western part of Bangladesh is deteriorating day by day due to increasing demand of food production, urbanisation and industrialisation. Here balance situation between food and water security is a serious challenge to the policy makers. This study is undertaken in the southern part of the Tract to assess the existing status of water governance and to identify challenges of sustainable development. Both quantitative and qualitative methods were used to assess governance status in five water management institutes (WMIs) like Barind Multipurpose Development Authority (BMDA); Bangladesh Water Development Board (BWDB); Department of Public Health and Engineering (DPHE); Local Government and Engineering Department (LGED); and DASCOH Foundation - a non-government organization) selected purposively based on their activities in the area. Eight indicators like institutions, transparency, accountability, participation, social equity, environmental integrity, efficiency and effectiveness are taken into consideration and each indicator includes five sub-indicators. The overall governance situation of WMIs fall under ‘moderate’ category while DASCOH Foundation performs ‘good’, BMDA and LGED ‘moderate’, while BWDB and DPHE perform ‘bad’. Moreover BWDB and DPHE should look into the governance issue seriously and take a rigorous action plan for scaling up of governance status. On the other hand, BMDA and LGED apparently perform satisfactorily in governance issues but lag far behind in indicators like transparency, accountability, participation and social equity. In strategic plan, the DASCOH Foundation is trying to introduce noble concepts to institutionalise the Integrated Water Resource Management (IWRM) under BWA (2013) and disseminating models not only to the community and local government but also to the government sector. Moreover, there are significant gaps in coordination, technical capacity, transparency in project selection, implementation and citizen’s participation in WMIs. Finally actions to meet challenges such as implementation of IWRM in managing water resource; role rationalisation of water institutions and actors; updating and harmonising water laws to cope with existing challenges; enforcement and compliance of laws; establishing independent regulatory body and Water Resource Management Organization (WRMO) etc. will help managing water resources in sustainable manner.