Mountain streams that originally supported Hawaiian cultural practices have been diverted for development, agriculture and tourism for over 150 years. Habitat characteristics and benthic macroinvertebrate community responses to water withdrawal were studied in four West Maui Mountain watersheds. We compared riffle and cascade habitats upstream and downstream of the highest‐elevation diversion in each stream and further compared streams to understand variation among watersheds. Riffles were shallow areas with moderate flow, whereas cascades had high‐velocity water flowing over boulders and were separated into torrenticolous (submerged) and amphibious (splash zones on adjacent exposed rock) microhabitats. Among streams, downstream discharge was reduced by 84–99%, flow velocity was four times greater upstream, and depth was 50% lower downstream. There was a significant 44% reduction in downstream macroinvertebrate density (t = 3.261, df = 136, p = 0.0014); however, density did not significantly differ among streams (F = 1.95, df = 3, p = 0.125). Habitat‐corrected density, based on total available habitat area, indicated significantly greater proportions of native taxa in amphibious microhabitats compared with riffle and torrenticolous habitats. Non‐native Chironomidae and Trichoptera (Cheumatopsyche sp. and Hydroptila sp.) were dominant (>95%) and ubiquitous in riffles, whereas native Limonia sp. dominated (30%) amphibious microhabitats. Macroinvertebrate community structure varied among streams, sites and microhabitats, indicating inconsistent response to water withdrawal, dependent upon watershed size and microhabitat conditions. Our findings contribute to water management and restoration efforts focused on conservation of native species and habitat integrity in tropical streams worldwide. Copyright © 2013 John Wiley & Sons, Ltd.