The Chilean water model has been described as a textbook example of a free-market water system. This article contributes to the critiques of this model by showing the effect of its implementation in the Atacameño community of Chiu-Chiu, located in the Atacama Desert in the south-central Andes. In this community, the privatization of water rights ignored local water management practices that had produced a high-altitude wetland (known as a vega). This led to the inhabitants’ dispossession of crucial water rights and to wetland degradation. This process belies statements that the Chilean model relies on an unregulated market and instead highlights the state’s role in marginalizing local irrigation practices by reducing the water consumption of the indigenous population while keeping the copper mining industry (the main source of Chilean income) and related growing urban populations supplied with water.