It is probably unsafe to drink the water from the taps in Chapala and Ajijic. Most people here, even the locals, drink bottled water. It is not recommended to drink the water coming from the lake, either. However, people do brush their teeth using tap water. When you do that, eventually, people tend to colonize their digestive tracks with the local flora and they turn out to be okay.
Public health standards here are different than they are in the US, Canada, and a lot of other developing countries in that the standards here are still developing. Drinking water, in particular, usually comes from big jugs called garrafons, which are 5-gallon jugs of water that you can buy at any local convenience store or have them delivered to your doorstep. It costs around US $2.50 per 5-gallon refill. Garrafons are generally used for making ice cubes. Some expats still do get sick even from bacteria that local people do not get sick from. It’s just about acclimating to the local bugs here.
If you are washing vegetables at home, you may want to buy a disinfectant called BacDyn. You just put a small drop as you soak your vegetables and they clean the vegetables. Most restaurants use that same method as well.
The restaurants that cater to expats tend to have a higher standard of cleanliness than those that don’t. A lot of the locals and even some expats tend to eat at the local streets vendors, such as taco stands, hotdog stands, and hamburger stands, where food is also prepared on the streets. There is really no guarantee that those vendors use the same standards for food preparation and cleanliness that an established restaurant would use.
Here in Mexico, people are very open to passing, by word of mouth, positive or negative experiences. People tend to vocalize if they have gotten sick after eating somewhere. The community here in Chapala is quite small so word of mouth spreads rapidly. The last thing a restaurant wants is to get a reputation that people got sick after eating at their place so they make sure that their food is clean.
(Bacdyn disinfectant for cleaning vegetables available in Mexico, pictured.)