Abstract. During a two-year field study, an annual nutrient budget and cycles were developed for a small agricultural watershed. The study emphasized the integrated unit of the watershed in understanding the biogeochemistry. It was found that the total nutrient input was 39.1 x 104 kg nitrogen and 3.91 x 104 kg phosphorus in the year 1995, of which the greatest input of nutrients to the watershed was chemical fertilizer application, reaching 34.7 x 104 kg (676 kg/ha) nitrogen and 3.88 x 104 kg (76 kg/ha) phosphorus. The total nutrient output from the watershed was 13.55 x 104 kg nitrogen and 0.40 x 104 kg phosphorus, while the largest output of nitrogen was denitrification, accounting for 44.1% of N output; the largest output of phosphorus was sale of crops, accounting for 99.4% of P output. The results show that the nutrient input is larger than output, demonstrating that there is nutrient surplus within the watershed, a surplus which may become a potential source of nonpoint pollution to area waters. The research showed that both denitrification and volatilization of nitrogen are key ways of nitrogen loss from the watershed. This suggests that careful management of fertilizer application will be important for the sustainable development of agriculture.The research demonstrated that a multipond system within the watershed had high retention rate for both water and nutrients, benefiting the water, nutrient and sediment recycling in the terrestrial ecosystem and helping to reduce agricultural nonpoint pollution at its source. Therefore, this unique watershed system should be recommended due to its great potential relevance for sustainable agricultural development.