Abstract The use of reclaimed water is expected to increase in the coming years, mainly in water-scarce areas. In the European Union (EU), an increase in the use of reclaimed water is expected to play a significant role within the European circular economy strategy and climate change adaptation policies with the aim to enhance overall sustainability of water resource management. While several institutions have offered estimations of the potential of reclaimed water reuse in the EU context, these estimations tend to overestimate potential reuse volumes since they fail to fully consider the following important issues: (a) the role of return flows in basins where cascade reuse is crucial in maintaining downstream uses (including ecological flows); (b) the availability of abundant (and cheaper) conventional resources; and (c) the economic productivity of water as an indicator of users’ willingness to pay for reclaimed water. This study focuses on the Spanish case since this is currently the EU member state with the highest potential for reclaimed water reuse. Findings show that previous estimations of reusable water volumes in Spain may have overestimated potential volumes. The proposed analysis can be extrapolated to other EU regions, where realistic estimations of the potential of reclaimed water might be much needed.