Tap water in Asuncion, and for sure Ciudad del Este, is NOT potable! Tap water in the rest of Paraguay should be treated to make it safe for drinking. There have been efforts by PLAN International to bring safe, potable water to communities in rural areas if there is such water available, it is safe to drink. Ask before drinking water in rural areas however--many Paraguayans will claim their water is safe to drink even if it's not purified.
The national beverage in Paraguay is called terere and is made from the yerba mate plant. It is served cold in guampas, which can be made out of wood or of hollow bull horns, and is drunk through a metal straw called a bombilla. The infusion is prepared by pouring dry yerba into the cup, then adding water: hot water version is known as mate preferred in Argentina and Uruguay while the cold water version is known as tereré and is a local favorite. Mate is usually enjoyed in the early mornings and late evenings especially during cold days in winter. Terere is enjoyed year-round, though not during lunch time and past sunset, as many recommend. Still, you can see every type of Paraguayan from construction workers to business executives carry their terere set during all times. Often, herbs are added to the tereré water locally called 'remedios' or 'yuyos', which cure different ailments. For example, adding coconut to one's mate is supposed to help with headaches. The taste is best described as earthy, like a bitter green tea, and it will take getting used to before you can enjoy it. Drinking mate or tereré is most definitely one of the social customs of Paraguay. Shops will close around noon for a siesta and for a round of mate/tereré with friends. If you can get used to the taste and participate, locals will be appreciative. This drink is also found in other South American countries such as Argentina, Uruguay, and parts of Brazil and Chile.
Beer is widely available, as are many liquors. The local beer is Brahma or Pilsen.
Paraguayan hard liquor is similar to rum and is known locally as caña. It is made out of sugar cane.
Pulp is a very popular Paraguayan soft drink. You can buy it a supermarkets or order it in various restaurantes and bars. The original is Pulp Naranja, made with real orange juice.
Mosto helado is extracted from the sugar cane and very sweet,sometimes mixed with lime juice to make an 'aloja'. You can find street carts selling mosto near the centro area and in the countryside.