California's severe drought—now in its third year—has led to major hardships in the state.

The list includes dwindling water sources, declining revenues for water districts from conservation; and mandatory fines up to $500 for hosing down driveways or for overwatering lawns. Not to mention the loss of agriculture crops and related jobs.

But what the drought hasn't done is stop the use of California's water supply for making bottled water products.

"Water is essential and if people weren't drinking our bottled water, they'd be drinking tap water or soda or beer," said Jane Lazgin, director of corporate communications at Nestle.

Read MoreCalifornia drought: Ground water has 'saved our bacon'



Nestle owns and operates Arrowhead Mountain Spring Water, which has been bottling water from a spring in Millard Canyon, California, some 80 miles east of Los Angeles.

It also makes water under its Pure Life brand from the same source, which is located on the Morongo Indian Reservation. Nestle pays the tribe for the water.

Because the reservation is considered a sovereign nation, it's not under any obligation to comply with state laws concerning the drought.

However, at least one state water supplier said Nestle is getting an unfair break.



"The restrictions we have here should be felt statewide regardless of the water source," said said Kurt Born, general manager of Clear Creek CSD, located in the northern California town of Anderson.

(Calls by CNBC to a representative of the Morongo tribe for comment were not returned at the time of publication.)

