Abstract. The adage: “There is no such thing as a free lunch”, is relevant to land-use hydrology in Australia. Changes in land use to achieve greater productivity of food and fibre may have an adverse effect on the water balance and hence on the natural resource capital of a catchment. An altered regime of catchment outflow accompanies those land-use changes which, together with land degradation, impairs available water resources in quantity and quality and threatens enterprise sustainability, notwithstanding the initial improvement in productivity. Central to any hydrological change is an altered pattern of seasonal and annual water use by vegetation that has become modified in function with an amended transpiration fraction of daily evapotranspiration. In Australia, since measurement of evapotranspiration became feasible, the hydrological consequences of changes in land use have been determined, allowing the benefits in terms of plant productivity achieved through enhanced water use efficiency to be weighed against changed catchment outflows, diminished in either quantity or quality. Four case studies are presented as examples of ecological and hydrological changes: two deal with the upland forest environment and two with arable lowlands. In an upland eucalypt forest, following wildfire with subsequent regeneration from natural seedling establishment, substantial reduction in water yield occurred throughout a 50-year period of succession in the even-aged stand. In comparison, the effect of converting eucalypt forest to pine plantations was less detrimental to the yield of water from the catchments, with substantial growth increases over 30 years. In the lowlands, agricultural productivity, both as annual pasture and as crop, far exceeds that of natural perennial grassland and woodland. This increase in productivity comes not so much from any change to the yield of total water outflow but at the expense of water quality, compromised with increased material transport in suspension and solution resulting from accelerated erosion in association with outbreaks of soil salinity and acidity. The present study is aimed at optimising management to give plant production outcomes that ensure environmental protection through resource conservation. In the uplands, harvesting of water is the dominant consideration so that conservative management with limited plant productivity is sought. In the lowlands, the objective is to devise novel ecosystems with profitable plant production that exercises due control on outflow in maintaining the chemical and physical integrity of the edaphic environment.