The impacts of watershed urbanization on streams have been studied worldwide, but are rare in China. We examined relationships among watershed land uses and stream physicochemical and biological attributes, impacts of urbanization on overall stream conditions, and the response pattern of macroinvertebrate assemblage metrics to the percent of impervious area (PIA) of watersheds in the middle section of the Qiantang River, Zhejiang Province, China. Environmental variables and benthic macroinvertebrates of 60 stream sites with varied levels of watershed urban land use were sampled in April, 2010. Spearman correlation analysis showed watershed urbanization levels significantly correlated with increased stream depth, width, and values of conductivity, total nitrogen, ammonia, phosphate, calcium, magnesium, and chemical oxygen demand for the study streams. There was significant difference in total taxa richness, Empheroptera, Plecoptera, and Trichoptera (EPT) taxa richness, and Diptera taxa richness, percentages of individual abundances of EPT, Chironomidae, shredders, filterers, and scrapers, and Shannon-Wiener diversity index between reference streams and urban impacted streams. In contrast, percentages of individual abundances for collectors, oligochaeta, and tolerant taxa, and biotic index were significantly higher in urban impacted than reference streams. All the above metrics were significantly correlated with PIA. The response patterns of total taxa richness, EPT taxa richness, and Shannon-Wiener diversity index followed a drastic decrease at thresholds of 3.6, 3.7, and 5.5% of PIA, respectively. Our findings indicate that stream benthic macroinvertebrate metrics are effective indicators of impacts of watershed urban development, and the PIA-imperviousness thresholds we identified could potentially be used for setting benchmarks for watershed development planning and for prioritizing high valued stream systems for protection and rehabilitation.