Participatory irrigation management (PIM) is an approach in which farmers participate in all stages of irrigation development through to operation and maintenance, and is implemented in many developing countries. Irrigation management transfer (IMT), a program of transferring the management of irrigation system from government to local user groups, has also been promoted. However, in most cases these approaches have not been successful, because, for example, of the unfair cost sharing and financial weakness in farmers’ organizations. This paper summarizes the current problems of PIM/IMT, proposes basic principles for sustainable PIM, which can be applied to IMT, through a review of the previous studies, and discusses future areas for the sustainable use and management of irrigation systems. The key issues that have contributed to the failure of PIM/IMT are a lack of awareness among farmers of the role and necessity of water users’ associations (WUA) and the inherent weakness of WUA. We propose the following principles for functional sustainable irrigation management: (1) The roles of WUA and governance are clear and adequate; (2) Through participation in WUA, farmers are guaranteed that their demand for water is supplied in a timely manner; (3) Farmers receive financial benefits through the use of water, which then allows them to cover the costs of water and associated services; (4) All members are treated equally with respect to water allocation, cost sharing, and decision-making; and (5) Information on the financial status and transactions are disclosed to members of WUA in a transparent manner. These principles are simple but can be applied to all irrigation systems.