The decarbonization of urban water systems is critical for achieving global climate goals, and reducing the carbon intensity of urban water systems necessitates a paradigm shift from traditional end-of-pipe treatment approaches to alternative technological solutions and holistic planning. This study explores a comprehensive strategy for achieving sustainable urban water management that integrates a decentralized water system (DWS), source separation, and low-carbon water treatment technologies. DWS is fundamental to implementing a sustainable urban water system. This study addresses the social contexts, costs, approaches, and benefits associated with DWS implementation, emphasizing the importance of its construction. Subsequently, the analysis focuses on the on-site source separation of grey water, feces, and yellow water in the DWS, which serves as the primary approach for wastewater reuse and N/P recovery for a sustainable urban water system. Following source separation, low-carbon water treatment technologies based on resource conservation and recovery are thoroughly discussed. Specifically, resource conservation can be achieved through rainwater control, efficiency improvements, and low energy consumption, while resource recovery can be attained through carbon capturing and energy/nutrient recovery. Overall, in response to the challenges in current urban water management, this study proposes a comprehensive strategy that supports a sustainable urban water system, providing theoretical guidance for reducing carbon emissions.