This article computes the currencified cost of water environment changing in Taihu Basin during 1987-2001. The deteriorated water environment in Taihu Basin has led an environment cost up to about 125.1 billion yuan with a increase of 6.67% per year. The cost accounts for 19 percents of the GDP in south Jiangshu province in 2001. Moreover, this paper has checked the effect of environment protecting policy implementation by established the policy-driving model of environmental change in Taihu Basin. The outcome suggests that the corresponding environment policy is effective because the environment policy has dropped the cost by 61.79%. Finally, this article put forward some suggestion on improving environment quality from several aspects, i.e. adjusting the industry structure, developing circulation economy and establishing the environment finance system from several channels.