Within watersheds, social, economical, political and physical subsystems interact. While making decisions, decision makers should be aware of such interactions as any new policy will not only affect one subsystem. To see if a specific management policy is proper, an integrated study is needed of complicated water management system in the basin, considering major physical, social, economical and political aspects of it. System Dynamics provides a unique framework for integrating the disparate physical and social systems important to water resource management and can be used to comprehend the interaction of different drivers of the problem. Here, this approach is used to find, for different scenarios, how various options of demand management and population control can be more effective when combined with transbasin water diversions, increasing water storage capacity and controlling of groundwater withdrawal in the river basin. A simulation model is built based on Causal Loop Diagrams of the watershed problem to comprehend the dynamic and interrelated characteristic of the system, and convey experiences, lessons learned, and perceptions gained through the model development process.