Adelaide is the capital city of South Australia, the driest state in the driest inhabited continent on this planet. From its beginning, the city has been threatened by lack of available fresh water, the most precious substance that may constrain its further development if cheap and clean water supply is not sufficient. This paper reviews Adelaide’s hydrological and geomorphological conditions, and found that the historical minimum flow in Murray-Darling River (5000GL/year in the Millennium Drought) can still meet Adelaide’s water demand in full if a second generation coastal reservoir is constructed. An initial coastal reservoir consisting of 5 barrages was constructed at Lake Alexandrina’s outlets in the 1930s with a capacity of 2000 GL. The measured flow data in the driest period in 2007 shows that an effective coastal reservoir’s capacity should be 580 GL. The research shows that once a smaller coastal reservoir is constructed inside Lake Alexandrina, Adelaide’s water demand can be fully met, and also the lake’s ecosystem is improved as its water level is stabilized, water detention time becomes shorter and salinity becomes lower under conditions equivalent to the Millennium Drought.