Segmentation of handwritten text into lines, words and characters is one of the important steps in the handwritten text recognition process. In this paper we propose a water reservoir concept-based scheme for segmentation of unconstrained Oriya handwritten text into individual characters. Here, at first, the text image is segmented into lines, and the lines are then segmented into individual words. For line segmentation, the document is divided into vertical stripes. Analysing the heights of the water reservoirs obtained from different components of the document, the width of a stripe is calculated. Stripe-wise horizontal histograms are then computed and the relationship of the peak-valley points of the histograms is used for line segmentation. Based on vertical projection profiles and structural features of Oriya characters, text lines are segmented into words. For character segmentation, at first, the isolated and connected (touching) characters in a word are detected. Using structural, topological and water reservoir concept-based features, characters of the word that touch are then segmented. From experiments we have observed that the proposed “touching character” segmentation module has 96.7% accuracy for two-character touching strings.