Accurate estimates of evapotranspiration across different land uses are a major challenge in the process of understanding water availability and uses in a river basin. This study demonstrated a remote sensing-based procedure for accurately generating evaporative depletion and runoff in mountainous areas using Landsat ETM+ images combined with standard hydro-meteorological data. The data was used as a key input into the International Water Management Institute (IWMI)'s water accounting procedure to understand how water is now used, and opportunities for improvements in the future. We found a higher annual actual evapotranspiration from the riparian forest than from irrigated agriculture in the East Rapti River basin of Nepal. Another important finding of our study is that simple rainfall surplus can be a good predictor of river flow at an ungagged site of the East Rapti River basin. The water accounting analysis revealed that there is the potential for further development of water resources in the East Rapti River basin as only 59% of the total available water is depleted. A critical analysis of social and ecological flow requirements downstream is necessary before any development of water resources upstream. This study successfully demonstrated that the key inputs required for evaluating and monitoring the overall water resources conditions in a mountainous river basin can be computed from satellite data with a minimal support from ground information.Key words: water accounting, remote sensing, SEBAL, evapotranspiration, rainfall surplus, evaporative depletion, East Rapti River basin Water scarcity in many large river basins of Asia will increase significantly due to rapid urbanization, industrialization, increased need for food and agricultural demands, economic development (CA 2007), and climate change (IPCC 2007). This increase in water demands for human uses, combined with the need to retain sufficient water for environmental uses has placed many river basins under stress (Smakhtin et al. 2004). Increased withdrawal of water for agriculture to meet increasing demands for food will alter river flow patterns and affect other uses such as environmental uses in the ways that are not immediately obvious. Hence, efforts to improve water management require better understanding of current water availability and uses in order to overcome problems of scarcity and competition on a longer time scale.Researchers have pointed out that new methodologies and terms are needed to describe clearly the actual use and physical losses of utilizable water from a hydrologic system (Willardson et al. 1994, Allen et al. 1997. Water accounting is a tool employed to help users in a hydrological domain to understand their resources. The International Water Management Institute (IWMI) developed a water accounting procedure to classify water balance components into water use categories that reflect the consequences of human intervention in the hydrologic cycle (Molden 1997, Molden and Sakthivadivel 1999, Cai et al. 2002). IWMI's water acc...