Objectives: This observational study aimed to assess distress related to the household water supply and to examine the relationship between household water insecurity and psychological health among Nepali postnatal women. Methods: In total, 300 women consented to participate in the study, of which 267 women were able to participate in a follow-up 1 month after discharge. We developed a household water insecurity scale (HWIS; total score range 0–24 points) by adapting the household food insecurity access scale. Results: The Cronbach's coefficient alpha for the HWIS was moderately acceptable. Psychological health was assessed in terms of postnatal depression and physical health-related quality of life (HRQOL). The median score of the HWIS was 8, and more than 60% of the participants answered that they sometimes or often worried about not having enough water, used only small amounts of water, had a lack of hygiene, and had insufficient time for childrearing. Multiple regression models showed that women with high levels of stress derived from household water insecurity had greater odds of probable depression and lower physical HRQOL scores than did women with low HWIS scores. Conclusion: The results suggest that improving water security is necessary to foster maternal psychological health in developing countries.