China has been stressing the needs of promoting regional sustainable development through industrial transformation. In the northwest region of China, which is faced with both urgent socioeconomic development and fragile ecological conditions, with water scarcity being one of the major characters, the relationship between industrial transformation and water use efficiency ought to be investigated. This paper conducted an empirical analysis of industry transformation’s impact on water use efficiency by using the Input-output analysis. First, we compiled an extended Input-output table with water use account; Second, the input-output analysis model was built based on the extended Input-output table; Then, a counterfactual experiment was performed to document the water use efficiency caused by industrial transformation; Finally, water use efficiency of different sectors in both northwest region of China as a whole and its five provinces were calculated. The results show that water use efficiency of northwest region of China is improved by optimizing industrial structure. Also, sectors with low water use efficiency but huge improvement potential were found out. Then policy implications for regional sustainable development and water resources management are provided at the end of the article.