This paper aspires to explain the development of water management system in the highlands of Mae Suk sub-watershed and to evaluate the relationships of access to irrigation water and livelihood assets as well as farmers’ livelihood strategies using a sustainable livelihood framework (SLF). The primary data based on interviews with farm households using a structured questionnaire and focus group discussion were collected in four villages of two different ethnic groups in Mae Suk sub-watershed, Mae Chaem district, Chiang Mai. Farm households were classified according to upland and lowland communities, irrigated area representing access to water as well as farm and non-farm income by using cluster analysis. During dry season, water competition is growing as commercial irrigated vegetable production has been more intensive in both lowlands and uplands. Irrigation systems have been developed to cope with the increasing demand. Adoption of water conveyance system using pipes with gravity force and sprinkler irrigation system has been increasing for commercial vegetable production in the upland communities. Several indicators in different components of livelihoods were developed and compared by testing for significant differences between household groups according to different access to water and to characterize vulnerability, livelihood assets, livelihood strategies and outcomes of each group. The SLF used in this study help in understanding how access to water and water availability can contribute to poverty reduction and enhances household income of farmers.