Competing demands from agriculture and tourism place significant strain on water governance in Mediterranean regions, highlighting the need for more inclusive and adaptive management strategies. This study examines participatory water governance through co-design processes, in the form of “Living Labs”, implemented at the Malia and Agia sites in Crete, Greece, as part of two PRIMA projects. Living Labs involved key stakeholders in addressing water management challenges related to tourism and agriculture at these Cretan sites. Participants participated in dynamic sessions mediated by digital tools such as Mentimeter and spatial mapping activities. These participatory activities and research experiments promoted social learning, facilitated open dialogue, built trust, and encouraged cross-sector collaboration, ensuring that stakeholder perspectives were integrated with scientific evidence and modeling results. The Living Labs identified key challenges, including competing water demands, governance fragmentation, and limited capacity, but also enabled stakeholders to propose context-specific solutions such as treated wastewater reuse, rainwater harvesting, and training in sustainable practices. This study demonstrates that participatory activities can create dynamic social learning spaces and strengthen stakeholder engagement in groundwater decision-making to address current and future challenges. The study offers a novel application of Living Labs for groundwater governance in Mediterranean tourism–agriculture contexts, providing insights transferable to other regions.