New South Wales Premier Nathan Rees has ordered all State Government departments and agencies to stop buying bottled water, following swiftly on plans for a small-town ban.

The measure comes hot on today's news that the NSW Southern Highlands town of Bundanoon is set to become the first community in Australia to ban the sale of bottled water.

Mr Rees already ordered all ministerial offices in Sydney's CBD to make do with tap water when he took on the top job last year.

He has today extended that instruction, saying the State Government should lead by example.

"We're asking government departments to phase it out unless there is obvious and practical commonsense reasons not to in the event someone doesn't have cool water in a hot environment," he said.

The Premier says the move will save taxpayer money and help reduce the impact on the environment of producing and throwing away plastic bottles.

Mr Rees is also planning a public campaign to discourage the use of bottled water by the wider community.

Residents in Bundanoon are meanwhile preparing to vote on their town's plan to ban local shops from selling plastic bottles of water at a community meeting tonight.

Local businesses in the town of 2,500 people are proposing to replace the bottles with reusables and then offer directions to filtered water fountains that will be installed on the main street.

The 'Bundy on tap' campaign was suggested by Bundanoon businessman, Huw Kingston, after a company applied to pump water out of a local aquifer to supply the bottled market.

"I put a little article, 'Does Bundanoon have the bottle to go bottled-water-free?' in our local newsletter," he told ABC Radio's AM program this morning. "I guess we have gone on from there."

Mr Kingston believes there will be widespread support for the plan.

"I think there is an overwhelming opposition to the marketing scam that is stilled bottled water," he said.

Other cities around the world have taxed bottled water and have put in place measures similar to the ones Nathan Rees has announced today.

Environmentalist Jon Dee from activist group Do Something believes Bundanoon could be the first town in the world to ban bottled water entirely.

"Huge amounts of resources are used to extract, bottle and transport that bottled water, and much of the package ends up as litter or landfill," he said.

"Environmentally, it makes no sense and... what we are trying to do in Bundanoon is show that a community can live without single-use bottled water."

Mr Dee, who was behind the campaign that saw plastic bags banned in the Tasmanian town of Coles Bay, says other towns around the country would not find it hard to follow Bundanoon's lead.

"If Bundanoon can ban bottled water, many other towns and communities around Australia will also consider their usage of bottled water," he said.

"At the very least, if they don't ban it, then at least they will reduce their usage of it and in doing so, reduce the half-a-billion dollars a year that Australians are spending on bottled water."

Mr Kingston says visitors to Bundanoon will not be set upon if they are seen sipping water from a plastic bottle.

"We are fairly civilised people down here. Nobody is going to get lynched for carrying a bottle of prepackaged water down the main street of Bundanoon," he said.

But he hopes the ban will make them think twice about how they quench their thirst.