The peri-urban area is the region where there is a more dynamic interaction between the urban and rural. The peri-urban area supplies natural resources, such as land for urban expansion and agricultural products to feed the urban population. In arid and semi-arid lands, such as northern Mexico, these areas may also be the source of water for the city's domestic demand. In addition, scholars argue that peri-urban residents may have a more advantageous geographical position for selling their labour and agricultural products in cities and, by doing so, sustaining their livelihoods. A considerable number of studies have examined the peri-urban to urban natural resources transfer in terms of land annexation, housing construction, and infrastructure issues; however, the study of the effects of the reallocation of peri-urban water resources to serve urban needs is critical as well because the livelihoods of peri-urban residents, such as those based on agriculture and livestock, depend on water availability. In the case of Hermosillo there is a tremendous pressure on the water resources of peri-urban small farm communities or ejidos because of urban demand. Based on interviews and structured surveys with producers and water managers, this paper examines how peri-urban livelihoods have been reshaped by the reallocation of the city's natural resources in many cases caused some ejido members or ejidatarios to lose livelihoods.