The Water Safety Plan (WSP) methodology, which aims to enhance safety of drinking water supplies, has been recommended by the World Health Organization since 2004. WSPs are now used worldwide and are legally required in several countries. However, there is limited systematic evidence available demonstrating the effectiveness of WSPs on water quality and health. Iceland was one of the first countries to legislate the use of WSPs, enabling the analysis of more than a decade of data on impact of WSP. The objective was to determine the impact of WSP implementation on regulatory compliance, microbiological water quality, and incidence of clinical cases of diarrhea. Surveillance data on water quality and diarrhea were collected and analyzed. The results show that HPC (heterotrophic plate counts), representing microbiological growth in the water supply system, decreased statistically significant with fewer incidents of HPC exceeding 10 cfu per mL in samples following WSP implementation and noncompliance was also significantly reduced (p < 0.001 in both cases). A significant decrease in incidence of diarrhea was detected where a WSP was implemented, and, furthermore, the results indicate that population where WSP has been implemented is 14% less likely to develop clinical cases of diarrhea.