Sustainability of donor-funded water projects is a major challenge in developing countries such as Tanzania. Water point Mapping survey conducted in 2009 by Water Aid in 51 districts including Arusha region found that 46% of public improved water points in rural areas of Tanzania are not functioning for a variety of undocumented reasons. This has accelerated a challenge in regards to access safe water in Arusha region. Beneficiary involvement has widely been cited as one of the factors in project sustainability. The study sought to examine the influence of beneficiary involvement on sustainability of donor-funded projects using OLMULO water project in Arusha region as a case study. The study adopted explanatory research design covering a target population of 30,000 community members who are beneficiaries of OLMULO water project from Oljoro, Murriet and Losinyai wards, Water Users Association, funding and implementing agenesis in Arusha region, Tanzania. Data was collated from a stratified simple random sample of 395 respondents through questionnaires and focus group discussions. Descriptive and inferential statistics were used to analyze the data. Pearson correlation and regression techniques were employed to assess the influence of beneficiary involvement on sustainability of donor-funded projects in Tanzania. The study revealed that beneficiary involvement in project planning and implementation in donor-funded projects influences project sustainability in Tanzania.