The impact of urbanization on industry water footprint in China was studied using spatial dynamic panel data and the system GMM method. Urbanization generally increases industrial water footprint, virtual water footprint, and gray water footprint. It reduces agricultural water footprint but raises agricultural gray water footprint. Urbanization increases manufacturing water footprint and gray water footprint. It also reduces virtual water footprint of the service industry but increases water footprint and gray water footprint. Across regions, urbanization increases industrial water footprint and gray water footprint. In the eastern region, urbanization has little effect on industrial water footprint but reduces agricultural water footprint. In the central and western regions, urbanization increases industrial virtual water footprint. Urbanization has different effects on water footprints in different sectors and regions in China.