The water straight out of the tap is fine for washing, but use either bottled water (often provided for free in better hotel rooms) or sterilize your own for drinking or brushing your teeth.
Unfortunately, it does not come up to the standards that people from the developed world can tolerate.
I would avoid drinking any tap water during a visit to Delhi. When dining outside the hotel, make sure you get the bottle in which the water comes, i.e. Aquafina or Bisleri. If you go on a road trip, invest a litre-size bottle or two before heading out, dont assume you will be able to find them on the way. As tempting as some of those drink carts look, the glasses arent always clean. I drank sugar cane juice from one of them and promptly developed a stomachache from my 20 rupee drink later that night.
I once stayed in a residential area in Delhi, the people I stayed with and the neighbors would use a water filter to get drinking water. If people who live there don't drink it, then I think outsiders shouldn't take their chances either.
This also goes for drinking outside in a local cafe or restaurant, even if you order a cold drink do not get any ice as this is probably made with tap water.
Like in the rest of India, be careful when it comes to tap water. Only used bottled water, and make sure that the bottle you buy is properly sealed, and not just refilled with tapwater.
Futhermore, be also careful with ice, and home-made juices sold on streets.
As with the whole of India, only drink bottled water and use it when you're cleaning your teeth. I kept a bottle with a bit of water in it beside the sink so as to remind myself to use it. Also, avoid ice and salads as they will probably have been washed in dodgy water. Its all common sense really but if you stick to it, you limit the chances of getting ill. A litre of water only costs from between Rs10 and Rs15 so its cheap and available everywhere.
Its best to play safe and ask for bottled water. Make sure its sealed before you buy it. There are several brands of bottled water in the market- bisleri, himalaya, aquafina, kinley, mcdowels, etc.
The more fancy restaurants are quite likely to serve filtered water, which is pretty safe. Its best to ask them about the water anyway.
Tap water is not safe to drink.
If you think that just buying a bottle of mineral water is sufficient, think again. Never, I mean NEVER, touch a bottle that is not properly sealed with the plastic coating still wrapped around the cap. And NEVER leave your finished/unfinished bottle of water behind without detroying it first. Chances are that someone will collect it and refill it. They even sell this stuff in hotel restaurants like Ajanta's. Trust me, I speak from personal experience.
Take good care of your belongings. When you do shopping, do remember to bargain. Tourists are their target to earn enough for a big meal!
Don't drink the water there. Must drink boiled water or soft drinks. Don't even drink mineral or distilled water. I was suffered for a few days sickness with their distilled and mineral water.Don't try!
Avoid drinking tap water. Bottled mineral water is ok but ALWAYS check the seal.
Avoid eating ice cream. Avoid also ice cubes in your drink.
Freshly cooked or boiled food can be considered as safe. Avoid eating raw vegetables or fruit, unless you can peel them yourself.