Water recycling is one of the important strategies that are currently being considered to reduce mains water consumption and relieve the pressure on Sydney's water supply. However, water recycling is only one element of the total water cycle of the site and its integrated water resource management. BASIX is a web-based sustainability indexing tool that is currently used by the NSW Government to reduce water consumption for residential developments by 40% through assessing their potential performance against the performance of benchmarked dwellings. The introduction of BASIX is an important step to promote the use of recycled water for new residential developments. However, the current approach needs to consider many other issues such as total water cycle performance of the development, reforming regulatory guidelines to encourage reliable decentralised recycled water systems and broadening the criteria for sustainability to account for social and environmental objectives. These issues and elements of a framework to sustainably manage water recycling schemes are discussed in this paper such as the need for comprehensive water cycle decision support tools, establishing links with the water cycle related issues of the catchment and providing new risk-based regulatory guidelines. Special emphasis is given to the use of BASIX as a water cycle decision support tool through a case study and indicating ways to improve its comprehensiveness.