The paper defined the concept of dual water carrying capacity based on water balance of different water quality and addressed a new method of determining forewarning classification according to timing of water shortage. A forewarning model of dual water carrying capacity was established based on system dynamics model. Taking the upstream of Niulanjiang watershed as a case study, the dual water carrying capacity was assessed and predicted by the model. Results show that under business as usual scenario, water resources of high quality will reach blue early warning and that of ordinary quality will reach yellow early warning. To meet the requirement of water diversion in the area, only low rate of socioeconomic development can be sustained in the area while environment protection measures has to be made at medium or above level.