Summary Land use change due to intensifying agricultural practices has profound effects on streams and rivers worldwide, and has been identified as an important source of fine sediment inputs to streams affecting both habitats and biota. Although the effects of sedimentation on stream organisms have been widely studied, manipulative field experiments involving fish and conducted at the reach scale are lacking. Further, it is unknown whether experimentally removing fine sediment from streams can reverse the negative impacts of sedimentation. Two farmland streams were manipulated for 2 months, by adding or removing fine sediment (using a powerful water blaster) in 50‐m reaches twice (initially and 1 month later). Each stream contained one sediment addition, one removal and one control reach separated by buffer zones. Streams were sampled on five occasions, and water physicochemistry, invertebrate community variables and fish densities (native species and introduced brown trout), diet and condition were determined. Multivariate benthic invertebrate community composition changed in response to the sediment manipulations. Total taxon richness, density of the caddis fly larva Aoteapsyche spp. and brown trout density responded negatively to sediment addition and positively to its removal. A similar trend, although not statistically significant, was observed for native fish density. Trout condition was also poorer in sediment addition reaches than in removal or control reaches. Our study provides experimental evidence from real streams that increased levels of deposited fine sediment can not only affect stream habitats and invertebrate communities, but also fish communities including trout density and condition. Further, sediment removal can reverse these negative effects, at least temporarily. These findings should help decision makers develop mitigation plans for current farming practices and improved best management systems for the future.