A household survey was conducted to determine the number of working days lost and household medical expenditure (ME) due to six water-borne diseases in the Terai region of Nepal. Drinking water sources of each household were analysed for total coliforms (TC). The study found 61% of the household water sources were contaminated with TC at the time of sampling. Number of days lost due to water-borne diseases was 8 days for TC-negative households and 10 days for TC-positive households per year. The average annual household medical expenditure was NR 459 for TC-negative households, and NR 789 for TC-positive households (p = 0.02 at proportional to = 0.05). Regression result showed that the presence of TC in the drinking water sources, number of children in the household and income of the household significantly determined ME.