I work for a water company. This is absolutely possible.
Typically. Water is piped from the reservoir to your home. You then use it and it becomes sewage. The sewerage leaves your house in a different pipe and is sent to a Water Treatment Plant. There it is usually treated until it is acceptable to release into the river/ocean.
The sewage can be treated to a much higher standard. Then sent back out in a third pipe as ‘Recycled Water’. This can be used for flushing toilets, some agricultural uses, and so on.
So why isn’t this common? short answer, it’s expensive.
Long answer; treating the water till it’s safe enough to use again is expensive. Usually way more expensive than using rain or bore water. Building the third network of pipes to distribute the recycled water is even more expensive. It really isn’t worth it unless you live in a part of the world with very limited water resources.
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