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Few comprehensive studies on stream assessment and biomonitoring have been conducted in tropical, freshwater watersheds. Currently under threat from climate change, urbanization and increasing freshwater demands, there is a need for innovative approaches to tropical watershed assessment and management. This study investigated cascade habitat macroinvertebrate communities among four tropical mountain streams with the goal of enhancing future efforts to identify flow biocriteria for watersheds of Polynesia. Cascade macroinvertebrate communities were compared between streams of differing size and magnitude of flow removal to evaluate the biological effects of water withdrawal on benthic communities. Two cascade microhabitats, identified as torrenticolous and amphibious, were evaluated for macroinvertebrate community differences and presence of native taxa among watersheds. Cascade habitat in general was reduced, by as much as 98%, in downstream reaches, having a significant impact on the stream ecosystem physical template important for native stream communities. In addition, two‐way ANOVA results revealed no main effects, but significant interactions of watershed size and flow removal on mean macroinvertebrate density for torrenticolous microhabitats; however, the opposite was true for the amphibious microhabitat. Diversity was significantly higher under undiverted flow conditions (t = 4.21, df = 272, p = 0.0004) and in torrenticolous microhabitats (t = 3.86, df = 272, p < 0.0001) over the entire study period. The amphibious microhabitat was composed of 39% native taxa, while the torrenticolous microhabitat contained <7%. This study provides new options for biomonitoring of native populations in Polynesian watersheds. Further studies that support the development of in‐stream flow criteria to preserve cascades are important to understanding the role of this habitat in tropical stream ecosystem function. Copyright © 2010 John Wiley & Sons, Ltd.