A system and method for conserving water in a hot and cold water system collects hot water that is discharged prior to the water reaching a desired temperature. A receptacle is disposed for receipt of cold and hot water from a water system, and a drain line is configured with the receptacle to drain water from the receptacle to a first collection site. A diverter valve is configured in the drain line and operates between a first position wherein water from the receptacle is directed to the first collection site, and a second position wherein water from the receptacle is directed to a branch line. A temperature activated valve is provided, and a second collection site disposed downstream of the temperature activated valve. The temperature activated valve has an inlet disposed for receipt of water from the branch line, and is operable between a first position wherein water from the branch line below a defined hot temperature is diverted to the second collection site, and a second position wherein water from the branch line above the defined hot temperature is directed to the first collection site.