The optimization of a multi‐echelon water transfer network (WTN) and the associate transportation and inventory systems with demand uncertainty is addressed in article. Optimal network structure, facility locations, operation capacities, as well as the inventory and transportation decisions can be simultaneously determined by the mixed integer nonlinear programming (MINLP) model which includes bilinear, square root and nonlinear fractional terms. By exploiting the properties of this model, we reformulate the MINLP problem as a conic integer optimization model. To overcome the memory and computing bandwidth limitations caused by the huge number of active nodes in the branch‐and‐bound search tree, novel distributed parallel optimization algorithms based on Lagrangean relaxation and message passing interface as well as their serial versions are proposed to solve the resulting conic integer programming model. A regional WTN in China is studied to demonstrate the applicability of the proposed model and the performance of the algorithms. © 2016 American Institute of Chemical Engineers AIChE J, 63: 1566–1581, 2017