Based on the definition and connotation of water environmental capacity, the shortcomings of currently prevalent zero-dimensional and one-dimensional methods for estimating the water environmental capacity of medium- and small-sized rivers are pointed out. According to these shortcomings, a new method considering the variation of water environmental capacity along a river is put forward. This method eliminates the exaggerated part of the environmental capacity estimation generated with the previous methods, and it is more practical. Moreover, the critical judgment criteria for estimating the existence of water environmental capacity are derived, including the maximum allowable concentrations of discharged pollutants and the maximum ratio of the length of the river reach with water quality indicators exceeding the standards to the total length of the river. Finally, practical cases are provided in order to compare the proposed method with previous methods.