In order to ensure that the water source area is rich in rainfall resources, we summarized related research results in regard to water source area compensation, and defined the scope of the water source area for the Taohe River Diversion Project and possible compensation forms. Based on the correlated objective relationship between GDP and COD, we established the regression equation and calculated the opportunity costs of the limitations for the water source area. The amount of compensation was calculated to be 1018. 9725 million yuan per year, of which the wages and benefits, taxes, and business profit were 611. 3835 million yuan, 203. 7945 million yuan, and 203. 7945 million yuan, respectively. We also put forward recommendations for the compensation system, compensation bodies, and compensation forms.