This paper contributes to the conceptual discourse of urban informality with empirical findings taken from a rapidly growing informal settlement in the periphery of Dhaka, Bangladesh. It considers the case of a public water utility dealing with the rationality of the decision-making process and the working culture of the public authority, and with the consequent local practices embedded in water supply. It explains how the informal behaviour of the public utility and the practices of the study community are constructed, legitimated and negotiated and thus become everyday reality. The findings characterise the public utility as an informalised entity whose decisions lack any prescribed set of statutory institutions and are, instead, rationalised politically, based on the location and individual interests of actors in a power matrix. This mode of water governance produces discriminatory practices of differential treatment and tolerance, thus informing questions of difference and urban division.