Streams as habitats for plants and animals are directly affected by the watersheds in which they lie. Locales within streams or ponds having certain characteristics (substrates, banks, vegetation) are embedded within watersheds that determine streamflow, stream chemistry, stream temperatures, sediment loads, and so on, which govern biological activity in the stream.

The community of life in a stream varies with its position along the length of the stream from steep, shaded, rushing headwaters to flat, sunny, slow-moving meanders low in the watershed. A stream can be seen as a continuum of life dependent on a continuum of physical features. Headwater (generally shaded) stream habitats are strongly influenced by surrounding watershed vegetation. Lower down, as stream size increases and shading decreases, a decrease in terrestrial organic input (such as leaves falling from trees) is balanced by greater instream food production and distribution. Populations of stream invertebrates shift with stream size and food production, and fish species follow the presence of their preferred insect foods, whether collectors, shredders, grazers, or collectors. Headwater streams depend on their watersheds for input of nutrients and organic matter that are not produced in the streams themselves. In that sense, a stream cannot be considered apart from the watershed that maintains it as a biological system. Small stream habitats, then, are largely determined by the vegetation, soils, climate, and topography of the watersheds in which they rise.

A stream is an expression of the watershed that is its source. In headwaters, dissolved nutrients feed aquatic and terrestrial algae and plants, which in turn feed everything else. Life in shaded headwater streams often relies more on plant matter fallen from streamside vegetation than on dissolved nutrients and aquatic vegetation itself. In one section of a stream, for example, black fly larvae feed on bacteria-enriched detritus, and trout feed on the larvae. Lower down the stream, aquatic algae, mosses, phytoplankton, and rooted plants assume greater importance in sustaining stream life. Here, perhaps, invertebrates and zooplankton feed on aquatic vegetation, and are in turn eaten by, say, alewives, which are eaten by pickerel, herons, kingfishers, ospreys, and people.