The Mayor of the Goulburn Mulwaree Council says it is critically important that a water recycling project for the town gets the green light from the Federal Government.

Paul Stephenson says the $38 million project would be jointly funded through the National Water Commission, the council and the New South Wales Government.

Mr Stephenson says he expects to know by the end of the month if the National Water Commission will support the project.

"As far as significance goes, here we are in November, everybody else has had plenty of rain and we've still only got just on 36 per cent total capacity, so the significance of this project is the long-term viability of this city," he said.

He says the council should hear any day if its application is successful.

"I think that all goes through the Prime Minister's department, so I think we'd be hoping for an announcement from the Prime Minister hopefully - I mean it's a fairly significant project as I imagine all of the others that are in there at the same time, they wouldn't be very insignificant projects, so we'd be hoping for a very big nod very, very soon," he said.