Water footprint analysis, which is based largely on calculations of virtual water, is gaining the attention of international organizations and policy makers. We endeavor to resolve some of the uncertainty regarding whether or not virtual water and water footprint analysis can be used to guide public policy decisions. We review the literature, describe pertinent economic concepts, and provide several examples that might be helpful in understanding the policy limitations of the virtual water metaphor. Professor Tony Allan chose the term to describe the water used to produce crops traded in international markets.