Forest ecosystem services contribute to human welfare, both directly and indirectly. Here the economic value of water conservation by Bazoft basin located in Zagros forests in western Iran was estimated, using simulation models and Geographic Information System (GIS) as a tool for analyzing the effects of ecological factors on ecosystem services. Rainfall-runoff simulation was carried out by using Curve Number (CN) method in HEC-HMS model. The model requires the inputs of land cover, soil and short term rainfall and discharge data. The efficiency of simulated model was revised using observed data and doing calibration stages.The role of forest on water retention and surface runoff reduction by devising four hypothetical scenarios and then the effects of land use changes associated with these scenarios on rainfall-runoff behavior of the region were determined. The results show that under the case of scenario one which assumes that the entire of basin area is covered by forests, total outflow would be in the minimum amount and rainfall initial loss will increase. Forest hydrological services related to water retention was economically assessed using Replacement Cost Method. Valuation results show that each hectare of Bazoft forests can store 84.8 m 3 water with 0.5 US$/ m 3 annual value. So the water retention value of each hectare of these forests will be 43US$. This could have positive economic consequences for the region and would help decision-makers in selecting appropriate and economically feasible development strategies.