The main purpose of this study was to explore factors affecting water use efficiency (WUE) by sector and find ways to improve it. A new Multi-Sector and Multi-Factors Logarithmic Mean Divisia Index (MLMDI) decomposing model was established in the paper. The model can decompose the change of WUE by sector into 14 factors definitely which can reveal 10 kinds of technology and structure effects and include indirect impacts. Applied the MLMDI model to Beijing, the affecting extent of 14 factors on WUE of 19 sectors during 2002-2007 were figured out. It was found that during 2002-2007 the drop of export and transfer out ratio of agriculture, the increase of grain production by unit of arable area had evident effects on improving water use efficiency by each sector. Industrial structure adjustment and labor structure change among different sectors had small impact on improving water use efficiency.