With growing water scarcity and water quality deterioration, water resource assessment has become a major focus of research in many areas of the world. Understanding water consumption and its structure is essential for assessing a city’s ability to achieve sustainable water resource utilisation. Based on the concept of the water footprint (WFP), we quantified direct and indirect water consumption in various sectors and used a water stress index (WSI) and water self-sufficiency (WSS) to evaluate the sustainability of water resource use in Lijiang City. The results showed that the WFP of the city in 2008 was 995 Mm3, and that the average WFP per capita was 815 m3, with a WSI of 8.36% and WSS of 100%. Agricultural water use was responsible for 93% of total local water consumption, with 62% for crops and 38% for animals. Lijiang City will face little stress from water resource use in the short term; however, its water use efficiency is relatively low, and the current water resource use is unsustainable in the long term. We recommend the assessment of direct and indirect water use as a necessary step in developing effective water management policies.