The non-potable reuse of treated sewage in urban areas provides significant conservation of potable supplies beyond that available through water use efficiency. Effluent reuse is also an inevitable requirement in novel decentralised wastewater systems. At present, urban water reuse, where pursued, usually involves large-scale schemes based on new or existing centralised sewage treatment plants. This is despite the diseconomy of scale inherent in pipe networks that balances economies of scale in sewage treatment and negates any cost advantage for wastewater systems with more than around 1,000 connections. In light of this, the theoretical relationship between effluent reuse system scale and pathogen risks was examined at various effluent qualities. Waterborne disease was seen to be a significant factor when reusing effluent in urban areas and smaller systems were found to pose a lower risk of waterborne infection, all other things being equal. Pathogen risks were then included within an economic analysis of system scale. It was concluded that with the inclusion of pathogen risks as a costed externality, taking a decentralised approach to urban water reuse would be economically advantageous in most cases. This conclusion holds despite an exact evaluation of increased waterborne disease due to effluent reuse remaining problematic.