Water reuse is a cost-effective solution that is carried out in many water-shortage countries on different levels. China, which is the most populous country in the world, is facing a serious water crisis, with great demand and feasibility to use reclaimed water to deal with freshwater shortage and pollution. Although much progress has been made, challenges and problems still exist, which hinder the development of the water reuse market. Accordingly, a strategy should be made from a sustainable use perspective. In this paper, the driving forces, the situations of applications, the social institutions and cultural backgrounds related to water reuse in China are reviewed and presented by a literature review and survey. The obstacles and challenges are discussed from management system, safety of reclaimed water quality, economy and policy perspectives. Beijing and Tianjin are selected for case studies in some aspects. Through review and analysis, it can be concluded that the management system, price system, safe supply of reclaimed water and supported policy are the main factors affecting the development of water reuse in China. The paper also identifies strategies for further sustainable and safe water reuse.