Mountains, said to be the world's water towers, are central for the provision of downstream water demands. This provision service is strongly challenged by climate change associated with changes in runoff amount and seasonality caused by the retreat of glaciers, rising snow lines, and changes in precipitation. One potential adaptation strategy is the construction of new water reservoirs or the adjustment of current reservoir management strategies. These strategies need to account for various water uses originating from sectors and governments with different economic interests. Here, we investigate governance processes leading to reservoir management strategies ignoring downstream water needs in one of the most important water towers of the world, the European Alps. We assess why governance processes can lead to a coordination gap between an upstream reservoir and downstream water needs. We show that downstream water deficits could potentially be covered through an upstream reservoir under mean and partially under extremely low inflow conditions. However, these hydrological conditions were neglected in the governance processes. The decision‐making when issuing the new reservoir concession was influenced by (a) a lack of knowledge and of an appropriate reservoir‐management study, (b) an interest to increase renewable energy production, (c) a focus on environmental agreements in the participatory process, and (d) economic interests. Our analyses provide factors, which need to be considered when designing governance processes for the management of reservoirs in world's important and vulnerable water towers. We conclude that immediate action is required towards balancing upstream and downstream water needs in governance processes.