Excessive nutrients and sediment are among the most significant environmental stressors in the Delaware Inland Bays (Rehoboth, Indian River, and Little Assawoman Bays). Sources of nutrients, sediment, and other contaminants within the Inland Bays watershed include point-source discharges from industries and wastewater-treatment plants, runoff and infiltration to ground water from agricultural fields and poultry operations, effluent from on-site wastewater disposal systems, and atmospheric deposition. To determine the most effective restoration methods for the Inland Bays, it is necessary to understand the relative distribution and contribution of each of the possible sources of nutrients, sediment, and other contaminants. A cooperative study involving the Delaware Department of Natural Resources and Environmental Control, the Delaware Geological Survey, and the U.S. Geological Survey was initiated in 2000 to develop a hydrologic and water-quality model of the Delaware Inland Bays watershed that can be used as a water-resources planning and management tool. The model code Hydrological Simulation Program - FORTRAN (HSPF) was used. The 719-square-kilometer watershed was divided into 45 model segments, and the model was calibrated using streamflow and water-quality data for January 1999 through April 2000 from six U.S. Geological Survey stream-gaging stations within the watershed. Calibration for some parameters was accomplished using PEST, a model-independent parameter estimator. Model parameters were adjusted systematically so that the discrepancies between the simulated values and the corresponding observations were minimized. Modeling results indicate that soil and aquifer permeability, ditching, dominant land-use class, and land-use practices affect the amount of runoff, the mechanism or flow path (surface flow, interflow, or base flow), and the loads of sediment and nutrients. In general, the edge-of-stream total suspended solids yields in the Inland Bays watershed are low in comparison to yields reported for the Eastern Shore from the Chesapeake Bay watershed model. The flatness of the terrain and the low annual surface runoff are important factors in determining the amount of detached sediment from the land that is delivered to streams. The highest total suspended solids yields were found in the southern part of the watershed, associated with high total streamflow and a high surface runoff component, and related to soil and aquifer permeability and land use. Nutrient yields from watershed model segments in the southern part of the Inland Bays watershed were the highest of all calibrated segments, due to high runoff and the substantial amount of available organic fertilizer (animal waste), which results in over-application of organic fertilizer to crops. Time series of simulated hourly total nitrogen concentrations and observed instantaneous values indicate a seasonal pattern, with the lowest values occurring during the summer and the highest during the winter months. Total phosphorus and total suspended solids concentrations are somewhat less seasonal. During storm events, total nitrogen concentrations tend to be diluted and total phosphorus concentrations tend to rise sharply. Nitrogen is transported mainly in the aqueous phase and primarily through ground water, whereas phosphorus is strongly associated with sediment, which washes off during precipitation events.