Soil erosion is currently a global problem that causes land degradation and long-lasting challenges in Ethiopia. Sediment yield is influenced by the watershed characteristics such as land cover, soil class, and slope, which are considered the drivers of soil erosion in the basin. The middle Awata watershed is highly susceptible to soil erosion due to its topographical features. This study is therefore aimed at estimating sediment yield, examining its spatial distribution, and evaluating the selected Best Management Practices (BMPs) to reduce soil erosion-prone areas at downstream. The model simulation was done by dividing the total watershed area of 1912 km2 into 37 subbasins and 294 hydrologic response units (HRUs) for 31 years (1988–2018). The model’s uncertainty evaluation was carried out on monthly basis using the Sequential Uncertainty Fitting (SUFI-2) algorithm. The performance of the model was evaluated by statistical parameters that gave R2 = 0.76, NSE = 0.75, RSR = 0.51, and PBIAS = 5.6% for calibration and R2 = 0.75, NSE = 0.74, RSR = 0.51, and PBIAS = 2.7% for validation of streamflow. Meanwhile, sediment yield in the watershed was also simulated with R2 = 0.69, NES = 0.66, RSR = 0.58, and PBIAS = 3.7% for calibration and R2 = 0.67, NES = 0.65, RSR = 0.61, and PBIAS = 5.6% for validation of sediment distribution. The simulated annual average sediment yield was 34.543 × 103 ton/year at the outlet of the middle Awata watershed. The developed spatial distribution of sediment yield identified the first twelve upstream subwatersheds as being soil erosion-prone areas. Following an evaluation of the four selected BMPs, it was determined that parallel terracing is the most recommended method for soil erosion reduction option in all critical subbasins found in the watershed.