Industrial Control Systems (ICS) in water distribution and treatment face cyber-physical attacks exploiting network and physical vulnerabilities. Current water system anomaly detection methods rely on correlations, yielding high false alarms and poor root cause analysis. We propose a Causal Digital Twin (CDT) framework for water infrastructures, combining causal inference with digital twin modeling. CDT supports association for pattern detection, intervention for system response, and counterfactual analysis for water attack prevention. Evaluated on water-related datasets SWaT, WADI, and HAI, CDT shows 90.8\% compliance with physical constraints and structural Hamming distance 0.133 $\pm$ 0.02. F1-scores are $0.944 \pm 0.014$ (SWaT), $0.902 \pm 0.021$ (WADI), $0.923 \pm 0.018$ (HAI, $p<0.0024$). CDT reduces false positives by 74\%, achieves 78.4\% root cause accuracy, and enables counterfactual defenses reducing attack success by 73.2\%. Real-time performance at 3.2 ms latency ensures safe and interpretable operation for medium-scale water systems.