South West Water is under investigation over its treatment of sewage, the Water Services Regulation Authority has announced.
It joins five other water companies in England and Wales being probed over wastewater concerns.
Raw sewage was discharged into waterways 375,000 times last year, according to the Environment Agency.
South West Water said it was taking Ofwat's decision "very seriously."
Discharged raw sewage poses a serious risk to health and the environment.
South West Water cover Devon, Cornwall and small parts of Dorset and Somerset, areas of England that are popular with swimmers and surfers.
Investigations are ongoing into Anglian Water, Northumbrian Water, Thames Water, Wessex Water and Yorkshire Water.
It has become common in England and Wales for members of the public to report seeing raw sewage in rivers, canals and along the coasts.
Condoms, toilet paper, and even excrement can be seen in the water and on riverbanks or beaches.
"As we gather and analyse more information, including data on storm overflow spills, our concerns have grown further about South West Water's operation of its wastewater assets and environmental performance," said David Black, Ofwat Chief Executive.
He called the scale of the issue so far "shocking" and told BBC News that Ofwat had never taken action on this scale before.
A South West Water spokesperson said the company would work "openly and transparently" with Ofwat. The company noted that it had recently announced its largest environmental programme in 15 years.
"This will reduce our use of storm overflows, maintain our region's excellent bathing water quality standards all year round and reduce and then remove our impact on river water quality by 2030," South West Water said.
The charity Rivers Trust told BBC News that the decision to open the investigation was "long overdue" and that "this kind of practice has become business as usual in the water sector."
In January, MPs were warned that a "chemical cocktail" is running through all of England's rivers.
Ofwat has the power to fine water companies 10% of their annual income.