To authorize the Secretary of the Interior to construct facilities to provide water for irrigation, municipal, domestic, military, and other uses from the Santa Margarita River, California, and for other purposes.

(Sec. 2) Authorizes the Secretary of the Interior to construct, operate, and maintain facilities to provide water for irrigation, municipal, domestic, military, and other uses for the Fallbrook Public Utility District, San Diego County, from the Santa Margarita River, California.

Authorizes Project construction only after determining that: (1) the District has entered into a contract to repay to the United States specified costs, with interest; (2) the authorized California officer or agency has granted water use permits to the Bureau of Reclamation for the benefit of the Department of the Navy and the District; (3) the District has agreed that it will not assert against the United States any prior right it may have to water in excess of the quantity deliverable under this Act and will share water (as specified in section 4); and (4) the Secretary has determined that the Project has economic and engineering feasibility.

(Sec. 3) Limits Navy Department responsibility for Project costs.

(Sec. 4) Directs that, except as otherwise agreed between the parties, the Navy Department and the District participate in the water impounded by the Project on the basis of equal priority with 60 percent of the Project's yield allotted to the Secretary of the Navy and 40 percent allotted to the District. Authorizes: (1) temporary contracts for the delivery of excess water by the Navy Department; and (2) modification of rights and obligations by agreement between the parties.

(Sec. 5) Directs that the District's general repayment obligation be determined by the Secretary of the Interior consistent with the Water Supply Act of 1958, but, for purposes of calculating interest and determining the time when the District's repayment obligation to the United States commences, deems the pumping and treatment of Project groundwater to be equivalent to the first use of water from a water storage project.

(Sec. 6) Authorizes the Secretary to transfer the Project's care, operation, and maintenance to the District or a mutually agreed upon third party under specified conditions.

(Sec. 7) Makes the laws of California the basis of all Federal rights pertaining to the use of water under this Act.

(Sec. 8) Directs that, unless otherwise agreed by the Secretary of the Navy, the Project: (1) shall be operated in a manner which allows the free passage of all of the water to which the United States is entitled either as a result of its acquisition of the lands comprising Camp Joseph H. Pendleton and adjoining naval installations and the water rights as a part of those acquisitions, or through actual use or prescription, or both, since the date of any acquisition; and (2) shall not be administered in any way which will impair or deplete the quantities of water to which the United States would be entitled had the Project not been built.

(Sec. 9) Authorizes appropriations.

(Sec. 10) Sets forth reporting requirements by the Secretary of the Interior and the Secretary of the Navy.