Although the classical irrigation efficiency concept is appropriate for irrigation system design and management, it could lead to erroneous conclusions and serious mismanagement of scarce water resources at a larger scale. This is because the classical approach ignores the potential reuses of irrigation return flows. To overcome these limitations, researchers have proposed the concept of water use efficiency at the basin scale, or basin efficiency, which takes into account the potential recycling and reuse of return flows. This paper discusses the implications of this new concept for hydrologic science and water management policies. An example for the assessment of basin efficiency is presented for the Yellow River Basin. Basin efficiency (BE) depends on the level of recycling and reuse of return flows as well as on local water use efficiency. Engineering measures such as conjunctive surface and ground water uses, storage regulation, and drainage treatment can increase BE through enhancing water recycling and reuse. Economic incentives can also improve the BE level by facilitating the reduction of non-beneficial water consumption or water losses. For water management and allocation decisions the BE indicator should be used together with economic efficiency indicators. For basins with competition among off-stream water demand and in-stream or in-site ecological water demand, the evaluation of water management in the basin should take into account BE in addition to other indicators, such as the criticality ratios and consumption ratios, as well as BE.