Greywater is not potable, but with proper treatment and UV sterilization, it can be. The primary contributors of greywater to the system are showers, bathroom sinks, and washing machines. Although rainwater is the freshest without treatment of the three types of water (black, grey, rain), greywater is a close second. If there is not enough rainwater falling or stored to be used for all the potable water needs of a house, greywater can be treated and used to supplement the rainwater. It requires more energy to treat, but overall would be less expensive than purchasing more water from the city.
Living machines, which mimic natural wetlands, are used to naturally treat greywater. This is accomplished through a series of stages involving plant and animal life. The effluent of a living machine is clean enough to be used for a variety of things, but with some sterilization it can be used to drink. After treating greywater through a living machine (which requires little energy due to gravity-fed compartments and natural systems of filtration), the water can be returned to the system for toilet flushes, fire suppression storage, washing machines, and irrigation purposes. As I mentioned, it can also be further sterilized and used for kitchen sinks, showers, dishwashers, and other potable water users.
Here’s a conceptual model of how a living machine works, from a past project of mine:
