Can I drink the water in Thailand?

Technically, yes, but I'd still stick to bottled water and carry a purifier for when forced to use tap water

Thailand is still a developing country, and it suffers from the same waterborne diseases and lackluster water treatment as much of the rest of the world.

Officially, there's nothing wrong with the tap water in Thailand, but antiquated pipes and poorly regulated systems should give you enough pause to stick to bottled water. Or beer. Beer is good.

Bottles of water will rarely set you back more than 30 THB ($1), so ahead and drink two to three liters a day (you need at least that much to stay hydrated and healthy in a tropical climate).

It's also wise, for when you can't get bottled water, to carry some kind of water purifier. The two easiest (an most effective) methods are a Steripen (you stick it in any bottle of water and a UV light sanitizes everything) or a Katadyn MyBottle Purifier(it is a water bottle with a filter/purifier attached to the built-in drinking straw).

What if I do get sick from the water?

Getting sick from drinking the water in Thailand is a possibility—but in all fairness, it is anywhere. (I, for one, use a filter even on backpacking trip here at home in Pennsylvania.)

The first sign of most common water-bourne illnesses (whether caused by protozoa, bacteria, or viruses) is diarrhea.

Frankly, if you do get diarrhea, it could merely be a response to the fiery Thai cuisine—or it could be a bug (mild or serious). Either way, play it safe until you feel better: stay in bed, drink tons of (bottled!) water to rehydrate, and stick to the BRAT diet: Bananas, Rice, Apples, and Toast.

In any event, if you feel seriously sick, go to the hospital. If you are worried about health insurance the like, see this page