The territory of the municipality of Mali Zvornik is, from the aspect of morphology and spatial-functional structure, a heterogeneous area. It is located in the valley of the Drina River and in hilly-mountainous part of Podrinjske mountains. The area of the municipality is 184 km², with 14076 inhabitants (2002). The importance of water resources for the development of the municipality, particularly of the hydropower plant (HPP) “Zvornik”, is analyzed in this paper. Inadequate use of hydro-energetic potential, possibilities for construction of new hydropower plants and economic reasons for their construction are also emphasized. The priorities of the development of hydraulic engineering are defined in relation to morphological and hydrological conditions. They refer to increase of power of the HPP “Zvornik” and construction of small-scale hydropower plants in hilly-mountainous part of municipality. Considering depopulation processes in the villages of Mali Zvornik, hydraulic engineering, together with agriculture, forestry, exploitation of mineral goods and tourism, can be one of the factors of demographic and economic revitalization of this area.