Groundwater is an increasingly important source of water supply in Kathmandu Valley, one of the fastest-growing South-Asian urban agglomerations. A groundwater policy drafted in 2012 was partly an outcome of an institutional restructuring of water management in Kathmandu Valley. Our findings in this article show that this policy lacks attention to peri-urban dynamics of change and growth and does little to address the unplanned and unregulated groundwater use in peri-urban locations in the valley, which urbanises at a faster rate than the main city. This article discusses the growing use of, and dependence on, groundwater in these rapidly evolving peri-urban spaces. Groundwater use continues to increase, despite growing protests and worries about its consequences. Our findings show that the polarised views and local conflicts around groundwater exploitation are the outcome of multiple entanglements: sectoral divides and overlapping responsibilities in water institutions, governance and management; social and economic transformations in peri-urban spaces; the invisibility of groundwater; and ambiguity in the hydrological dynamics of conjunctive water use. While we see no easy solutions to these problems, the policy-relevant recommendations we derive from our analysis of the drivers and the dynamics of using, governing and managing groundwater draw attention to the complex on-the-ground realities that need to be better understood for addressing macro-micro gaps in (ground)water management.