The allocation of water resources has a profound impact on the regional economic development pattern. The South-to-North Water Diversion Project (SNWTP) provides strong support for optimizing water resource allocation and alleviating the serious water shortage in northern China. However, whether the operation of the SNWTP can promote the economic growth of the water-receiving areas and water-source areas still remains unclear. This article took the Central Line Project of the SNWTP as an example and used the synthetic control method to analyze the impact and mechanism of water supply on the economic growth of water-receiving areas and water-source areas. The research results showed that: (1) From the overall effect, the water transfer had a significant positive effect on the per capita GDP and nighttime light brightness of the water-receiving area and water-source area, indicating that the engineering water supply had effectively promoted the economic growth and activity of the two areas. From the perspective of dynamic effects, the promotion effect of engineering water supply on the economic growth of the water-receiving was hysteretic. In the first two years of water supply, a slight impact was shown on the economic development of the water-source area, and a positive promoting effect was shown thereafter. (2) The engineering water supply had a significant positive impact on the rationalization of industrial structure in water-receiving areas and water-source areas, and the rationalization degree of industrial structure promoted economic growth in the two areas. (3) The engineering water supply improved industrial structure sophistication in water-receiving areas, but the impact on the industrial structure sophistication in the water-source areas was hysteretic; The effects on industrial structure sophistication could significantly promote economic growth in the two areas. (4) From different dimensions of economic growth, the growth of per capita GDP in water-receiving areas and water-source areas mainly depended on the rationalization effect of industrial structure; The improvement of economic activity depended on the effect of industrial structure sophistication. Finally, this study provided policy recommendations for promoting the high-quality development of the follow-up project of the SNWTP to fully leverage its strategic and fundamental functions.