Land cover change in watersheds affects the supply of a number of ecosystem services, including water supply, the production of timber and nontimber forest products, the provision of habitat for forest species, and climate regulation through carbon sequestration. The Panama Canal watershed is currently being reforested to protect the dry-season flows needed for Canal operations. Whether reforestation of the watershed is desirable depends on its impacts on all services. We develop a spatially explicit model to evaluate the implications of reforestation both for water flows and for other services. We find that reforestation does not necessarily increase water supply, but does increase carbon sequestration and timber production.here is considerable evidence that land cover change in watersheds affects mean water flows (1-3), extreme flows (4, 5), and water quality (6). In so doing it also impacts a range of other ecosystem services, including timber production, habitat provision, and macroclimatic regulation through carbon sequestration (7-9). In all cases the precise effect of land cover change depends on local environmental conditions and land use. In this paper we consider the effect of the planned reforestation of the Panama Canal watershed on the bundle of ecosystem services it delivers. The reforestation plan is a reaction to the fact that forest cover has declined by over 40% since 1974 (10). At present 55% (1,598 km 2 ) of the Panama Canal watershed is under forest (Fig. 1). Two-thirds of the forested watershed lies in protected areasmost established since 1980. Vegetation in the remaining areas comprises grassland (29%), shrubland (10%), commercial tree plantations (2%), and urban areas (3%). Agriculture accounts for less than 1% of the watershed area. Reforestation is the centerpiece of a 1997 regional land-use plan within the framework of Law 21. The plan aims to achieve a 94% reduction in land under pasture in the watershed by 2025 (11), and is supported by a series of forestry-incentive laws (12). It is expected to yield a number of benefits, the most important of which is an increase in the water flows needed to operate the Panama Canal in the dry season. Because the current expansion of the Canal (expected to be completed in 2014) will substantially increase demands from the watershed, the effect of reforestation on dry-season flows is of some importance. To evaluate the impact of reforestation on water flows and other ecosystem services, we constructed a spatially explicit model of ecosystem service flows (summarized in the final section and described in detail in SI Text). We then used this model to project the impact of changes in forest cover on dry-season water flows, timber production, and carbon sequestration across the watershed and to test the efficiency of alternative patterns of reforestation.We first considered the impact of forest cover change on mean wet-and dry-season water supply. This depends on the balance between runoff, infiltration, and evapotranspiration. If infiltration gains ...