In the Netherlands agriculture and nature have conflicting interests with respect to groundwater management. Insight into the suitability of policy instruments to achieve optimal groundwater level and extraction management in the Netherlands is, however, missing. In this paper the suitability of policy instruments for groundwater management is studied. Changes in the institutional environment and voluntary agreements seem to be more suitable for groundwater level management than economic instruments. The current historical groundwater extraction rights systems together with the low groundwater prices encourage low-value agricultural groundwater usage, whereas sprinkling bans and irrigation scheduling currently aim to reduce low-value use of groundwater. These extraction instruments are less efficient than a system that considers externalities in the price of water or diverts water away from agriculture while encouraging trading.