Abstract: Qiandao Lake is the water faucet for more than 10 million people in Hangzhou and the perimeter zone, taking account at least 50% of the drinking water supply of Hangzhou. Although the water quality of the Qiandao Lake remains in the first or second-class water standard, agricultural non-point source pollution is still a tough problem. Since 2016, The Nature Conservancy (TNC) and many partners have established the Qiandao Lake Water Fund to apply Nature-based Solutions (NbS) to water source protection. The practice of eco-friendly water management of Qiandao Lake firstly took the complete watershed as the object, analyzed and planned the ecosystem with the goal of water quality improvement, analyzes the source and distribution of agricultural non-point sources, and identified the plots that should be prioritized for governance in the watershed scale. On the basis of the watershed analysis, we combined local socio-economic feasibility assessment and selected the Shangwuxi sub-watershed in Anyang, Chun’an County as the pilot area. A series of ecological water control practices, such as precision fertilization, cover crops, and ecological prevention and control have been implemented in the rice fields and tea gardens. Scientific evaluation of pollution prevention and control effects, costs, and impacts were carried out to establish a comprehensive demonstration basis for controlling non-point source pollution with a “source treatment + process intercept + end treatment” pattern, which could be helpful to build multiple and long-term systems. At the same time, the project introduced social resources and explored the water fund model which combined the beneficiary payment and eco-industrial water treatment. The governance of non-point source pollution in Qiandao Lake watershed improved the water quality and achieved a win-win situation for ecological protection and green economy through establishing long-term management and sustainable funding mechanism. With the increasing scale of Chinese cities and the prominent water use challenges, the practice of Qiandao Lake Water Fund provides experiences for the treatment of urban water sources in China. The use of a market mechanism ensures the safety of the urban water supply. It is of great significance for the protection of urban water security and the treatment of non-point source pollution in river basins in China.