Some microfungi are known to be opportunistic human pathogens, and there is a body of scientific opinion that one of their routes of infection may be water aerosols. Others have been implicated as causative agents of odours and off-tastes in drinking water. This study was undertaken to investigate three potential sources of microfungi in a treated, oligotrophic municipal water supply system in sub-tropical Australia. Formation of the microfungal component of developing biofilm on hard surfaces in water storage reservoirs was also assessed. Inside and outside air samples were collected from two reservoirs using two types of Burkard air samplers. Biofilm and soft sediment samples were collected from the inner surfaces of asbestos cement water pipes and from pipe dead ends respectively. These were analysed for microfungal growth and sporulation using Calcofluor White stain and epifluorescent microscopy. Artificial coupons of glass, PVC and concrete were immersed in two reservoirs to assess microfungal biofilm formation. This was analysed periodically using Calcofluor White stain and epifluorescent microscopy, cultures of coupon swabs and scanning electron microscopy. Fungal spores were recovered from all air samples. The number of colonies and the genera were similar for both inside and outside air. Microfungal filaments and sporulating structures were recovered from most of the pipe inner surface biofilm and dead end sediment samples, but were sparser in the biofilm than in the sediment samples. No recognisable, vegetative filamentous fungi were found in the slowly developing biofilm on coupons. This study indicates that airborne spores are an important potential source of microfungi found in water storage reservoirs. It has also demonstrated conclusively that filamentous microfungi grow and sporulate on water pipe inner surfaces and in soft sediments within the water distribution system.