This paper aims to present a basic conceptual framework for understanding the main practical issues and challenges relating to tariffs and subsidies in the water sector in developing countries. The paper introduces the basic economic notions relevant to the water sector; presents an analytical framework for assessing the need for and evaluating subsidies; and discusses the recent evidence on the features and performance of water tariffs and subsidies in various regions, with a special focus on Africa. The discussion is limited to the provision of drinking water to urban households in developing countries. 1. Introduction -- 2. Provision of Drinking Water: Basic Notions -- 3. Subsidies -- 4. How Do Subsidies Fare in Practice? -- 5. Conclusion: Incorporating the Framework Into Water Sector Reforms in Africa.