Water scarcity is becoming an increasingly significant problem worldwide due to the escalating impacts of climate change triggered by global warming. Particularly, alterations in precipitation patterns and evolving consumption habits demonstrate that the corresponding problem is both induced by not only nature but also human beings. The conventional approaches, called linear models, have widely used. Given the resource limitations encountered in every sense, the research community orientates their attempts towards circular economy-based initiatives embracing “Reduce-Reuse-Recycle” rationale, recently. Hence, sustainable strategies taking social, environmental, and economic perspectives into account are proposed to promote the prudent use of natural resources, as well as water conservation critical for the survival of all life forms. The current study examined the approaches related to the adaptation of circular economy principles in addressing water scarcity-related risks, especially in urban areas where consumption is increasing due to intense urbanization and industrialization. Barriers and drivers for implementing related strategies are further highlighted. In this vein, a total of 37 circular economy-based strategies have been proposed from six different perspectives (i.e., social, environmental, economic, innovation, legal, and technical) to combat water scarcity, while in a similar manner, potential challenges and opportunities regarding circular economy adaptation are elucidated considering four primary perspectives, namely economic, technological, managerial, and social. Overall, it is believed that the corresponding conclusions made by a diligent literature survey are expected to contribute to authorities involved in critical decision-making processes in densely urbanized cities to achieve sustainable development goals.