Water distribution network (WDN) is a typical real-world complex network of major infrastructure that plays an important role in human's daily life. In this paper, we explore the formation of isolated communities in WDN based on complex network theory. A graph-algebraic model is proposed to effectively detect the potential communities due to pipeline failures. This model can properly illustrate the connectivity and evolution of WDN during different stages of contingency events, and identify the emerging isolated communities through spectral analysis on Laplacian matrix. A case study on a practical urban WDN in China is conducted, and the consistency between the simulation results and the historical data are reported to showcase the feasibility and effectiveness of the proposed model.