"We've lived in a state of virtual reality," says Pat Mulroy, general manager of the Nevada Water Authority. "We've not accepted that we live in a very arid land, and one of the things we've taken for granted is our water supply."
As CBS News Correspondent Jerry Bowen reports, supplies are so tight the Nevada Water Authority is paying homeowners $1 per square foot to rip up their water guzzling lawns. It's a conservation drive that's removing the equivalent of a football field a day and keeping desert landscapers busy.
Landscaper Wayne Shock, who's been in business for more than 30 years, says his business has almost tripled since the conservation drive began.
The drought is so threatening that labor unions are saying the unthinkable, that it's time to put the brakes on housing construction in the fast growing state in the nation.
"There's no reason we can't shut down home construction to a livable position of 20-25,000 houses," says Teamster spokesman John Wilson. "We're willing to sacrifice a little today to keep jobs going for the next 15 to 20 years."
Those gushing fountains bubling under the Las Vegas sun are actually running on water imported from Canada.
No single location illustrates the drought's effect more than Lake Mead, the source of 90 percent of the water for the Las Vegas area. Just six years ago, this fishing platform was over the lake. Now, it's just a high, dry overlook.
With no surplus water available from the Colorado River, the reservoir, with its growing natural bathtub ring, is near 40-year-low levels. Water officials say a drought emergency declaration is the next step if conditions worsen.
"The next level is really ugly," says Mulroy. "Now you're talking about banning swimming pools, draining swimming pools, banning any kind of car washing outside."
For now, there are limits on new grass lawns, restrictions on sprinkler use and 24 hour surveillance with computers tracking offenders who face hundreds of dollars in fines.
Water cop Dennis Gegen patrols the streets, looking for offenders.
"He's got a little over-spray in the driveway there," he says of one household. "One of the heads shooting too far."
So far, the water cops and the conservation cut backs are making a difference, from residents giving up the green, green grass of home to the casinos that have started importing water from Canada to keep those fountains gushing.
For now, the city that lives on illusion, is beating the odds.