The rapid population growth, industrialization and increasing commercial activities coupled with inadequate provision of sanitation services to the residents of Kampala city have resulted in increased generation of waste polluting the water sources. The Lake Victoria Inner Murchison Bay (IMB) is one of the bays, which is getting polluted due to the human activities. This paper assessed the pollution level in the IMB and the consequences on the drinking water treatment plant for Kampala city. Water samples from the streams and within the IMB were sampled over the years and analyzed using standard laboratory methods. The water quality data showed that the water in the bay have deteriorated in the recent decades and, its suitability as drinking water supply source have decreased such that there is need complex treatment. The concentration of BOD, COD, TN and TP in the stream are above the recommended effluent discharge standard by the National Environmental Management Authority and, levels with the bay are above the background water quality. The water treatment cost increased by four folds in the last 10 years due to increased chemical dosage to treat the poor water quality. Strategies promotes recycling of organic waste would reduce the pollution load in the bay. The human excreta treatment need to be decentralized and, the Nakivubo channel surface water treated. The intakes for the treatment plants need to be reallocated to the outer bay with good quality water to reduce alum dose.