It shows Californians are starting to understand "that we are in the drought of our lives," state water regulator official Felicia Marcus said.
It is the second month in a row the state has exceeded emergency conservation regulation.
California has been dealing with record low water levels for four years.
California Governor Jerry Brown imposed the state's first mandatory water restrictions four months ago, ordering a 25% reduction in all towns and cities.
In June, the state used 27% less water than it used in the same period of 2013, when the drought emergency was first declared.
This saving rose to 31.3% in July, with a cumulative saving for both months of 29.5%, the State Water Resources Control Board reported on Thursday.
Felicia Marcus, who chairs the board, praised the "millions of conscientious Californians" who she described as "the real heroes here".
She said record rain in July had played a role, as well as better enforcement, including warnings and penalties, and messaging by the water agencies.
But, she warned, "this isn't your mother's drought or your grandmother's drought, this is the drought of the century".
Drought monitors say 92% of California is currently in severe drought or worse, down from 94% at the start of the year.
Cities in California cut water use by 31.3% in July, exceeding a state-wide mandate of 25% to combat a record four-year drought there, officials say.