This study applied the perspective of Urban Political Ecology and the concept of extended urbanization in an analysis of the establishments of the Feitsui Reservoir and Taipei Water Source Domain, showing that how Pinglin District was involved in the process of extending urbanization driven by water supply. Official documents, historical news, firsthand interviews and field observation were performed to depict the social-spatial transformation and the territorial governance of Pinglin. The study revealed three main strategies for territorial governance of water source protection: compensation for local residents, techniques of pollution governance and land use regulations imposed by spatial planning projects. In recent years, tourism development has provided opportunities to re-negotiate the two diametrical poles-conservation and local livelihoods-the tensions within the process of extending urbanization still remained.