The average household's water and sewerage bill will drop by about £17 a year in England and Wales.
Water UK, the industry trade body, said the average annual bill would fall by 4% to £396.60 from 1 April.
Its chief executive, Christine McGourty, said the water industry was "committed to giving customers good value for money".
The regulator Ofwat said the drop was down to the fact it had "demanded greater efficiency" from firms.
Changes to bills will vary from customer to customer and depend on their supplier.
The commitment comes at the start of the next five-year "business cycle" for water companies.
Ofwat has been "too soft" on water companies in the past, Tony Smith, chief executive of the Consumer Council for Water (CCW), told the BBC's Today programme.
"Only about 60% of customers think their bills are fair and that's partly because bills have risen for many years and the regulatory system has been too generous to water companies until now.
"I think the regulator has somewhat belatedly got to grips with the industry now and we are fully supportive of that."
Water UK said that there would also be more help for vulnerable customers between 2020 and 2025.
It said firms plan to double the number of people getting help with their bills every year, up from 760,000 customers now to at least 1.4 million by 2025.
Measures to assist them could include introducing social tariffs, discounts for those on lower incomes or receiving benefits, or assisting charities that provide help.
Ofwat told suppliers in December that they would have to cut the average customer bill by £50 over the next five years.
There has been recent criticism of water companies over high profile pollution incidents as well as leaks, water quality and high bills.
An Ofwat spokesperson said: "We continue to push companies to deliver improved services for customers, the environment and resilience for generations to come while making sure that bills are fair."
They added: "Today's announcement has been secured because we have demanded greater efficiency, passing through lower financing costs and promoting more innovation."
At the same time, it is forcing firms to restrict investor payouts and to invest billions of pounds to improve their performance and reduce leaks in their systems.
Ofwat oversees the privatised water market in England and Wales. It monitors the market to see if it needs to intervene to protect customers and to set limits on the price they are asked to pay.
Scotland has its own separate regulator, the Water Industry Commission for Scotland.
The CCW told consumers to "take full advantage" of the reduction in bills.
It added: "There are still millions of households who could tap into savings by switching to a meter or cut their bills if they're on a low income by signing up to their company's social tariff."