In October 2010, the Murray-Darling Basin Authority (MDBA) proposed that a range of 3000–4000 GL per year, on average, of additional water be made available for the environment in the Murray-Darling Basin (MDB) to mitigate the effects of what it considers to be inadequate environmental flows. To help quantify the costs of this water reallocation, a hydro-economic model was constructed based on the 19 regions of the MDB. The model results indicate the following: (i) substantial reductions in surface water extractions of up to 4400 GL per year impose only a moderate reduction on net profits in irrigated agriculture, Basin wide, given competitive water markets, but the effects are much more pronounced in particular regions/catchments and (ii) the costs of the water reallocation are comparable with the amount budgeted by the Australian government to acquire water from willing sellers and increase environmental flows if inter-regional water trade is unrestricted.