Traditionally, small dams (tanks) have been both centres of village settlements and the source of irrigation in Asia. Being solely dependent on local rainfall characteristics and other climatic factors, the water storage behaviour closely follows the rainfall pattern. Carry-over of storage from year to year is rare because of natural evaporation and withdrawals for irrigation. The efficient allocation of storage, within any year, is analogous to the optimization of a time-varying exhaustible resource stock. This study attempts to model water storage of dams using weekly data with a view to intrayear optimization of storage. The behaviour of storage is approximated by a dynamic system driven by rainfall distribution and temperature, and characterized by a linear transfer function model following modification of rainfall to allow for losses. The order of the linear part of the model is identified and parameters estimated for three tanks in Sri Lanka using a recursive estimation procedure. This model can be used for the prediction of storage for a given rainfall scenario. This is demonstrated for past realistic rainfall experiences using stochastic simulation of storage.