The spatial scale and location of land whose development has the strongest influence on aquatic ecosystems must be known to support land use decisions that protect water resources in urbanizing watersheds. We explored impacts of urbanization on streams in the West River watershed, New Haven, Connecticut, to identify the spatial scale of watershed imperviousness that was most strongly related to water chemistry, macroinvertebrates, and physical habitat. A multiparameter water quality index was used to characterize regional urban nonpoint source pollution levels. We identified a critical level of 5% impervious cover, above which stream health declined. Conditions declined with increasing imperviousness and leveled off in a constant state of impairment at 10%. Instream variables were most correlated (0.77 ≤ |r| ≤ 0.92, p < 0.0125) to total impervious area (TIA) in the 100‐m buffer of local contributing areas (∼5‐km2 drainage area immediately upstream of each study site). Water and habitat quality had a relatively consistent strong relationship with TIA across each of the spatial scales of investigation, whereas macroinvertebrate metrics produced noticeably weaker relationships at the larger scales. Our findings illustrate the need for multiscale watershed management of aquatic ecosystems in small streams flowing through the spatial hierarchies that comprise watersheds with forest‐urban land use gradients.