(1) Background: Water resources at Chia lagoon experience possible threat to its sustainability. Communities are seeking alternatives to improve water quality at the lagoon. The study evaluated the extent at which local communities are WTP to improve water quality at Chia lagoon and the influencing factors. (2) Methods: A study was conducted at Chia lagoon, Western Part of Lake Malawi from November, 2015 to March, 2016. Wide range of data collection approaches such as household surveys, exploratory surveys, focus group discussions, key informant interviews and field observation were employed. A sample of 240 households were selected randomly. Qualitative data was analysed using content analysis. Multivariate logistic regression analysis was used to determine factors influence WTP. (3) Results: Out of 240 respondents, 57.4% expressed WTP. Multivariate logistic regression analysis demonstrated significant (P<0.01 or P<0.05) relationship between demographic (Gender, age, literacy level), social-economic (Land ownership, main agriculture water source and income) and institution (civic education and social network, extension, water user rights) factors and WTP. (4) Conclusion: The findings from this study provide significant clues for further research and baseline information for local government and local communities in development of more effective and holistic approaches to improve water quality.