There is a growing interest in utilising non-traditional water resources by means of water reclamation and water recycling for long term sustainability. Amongst the many treatment alternatives, membrane bioreactors (MBRs) have been seen as an effective technology capable of transforming various types of wastewater into high-quality effluent exceeding most discharge requirements and suitable for a variety of reuse applications. To date MBRs are largely restricted to centralised large scale applications, with the most common capacity of 200 ML per day or above. The aim of this paper is to review and discuss the potential and limitations of MBRs for small scale applications. Both technical and economic considerations will be delineated with respect to the future water outlook in Australia. Particular attention is also given to the impact of MBR technology on the removal of micropollutants that are of significant concern in water recycling.