This study investigates how drought-induced change in semiarid grassland community affected runoff and sediment yield in a small watershed in southeast Arizona, USA. Three distinct periods in ecosystem composition and associated runoff and sediment yield were identified according to dominant species: native bunchgrass (1974–2005), forbs (2006), and the invasive grass, Eragrostis lehmanniana (2007–2009). Precipitation, runoff, and sediment yield for each period were analyzed and compared at watershed and plot scales. Average watershed annual sediment yield was 0.16 t ha−1 yr−1. Despite similarities in precipitation characteristics, decline in plant canopy cover during the transition period of 2006 caused watershed sediment yield to increase 23-fold to 1.64 t ha−1 yr−1 comparing with preceding period under native bunchgrasses (0.06 t ha−1 yr−1) or succeeding period under E. lehmanniana (0.06 t ha−1 yr−1). In contrast, measurements on small runoff plots on the hillslopes of the same watershed showed a significant increase in sediment discharge that continued after E. lehmanniana replaced native grasses. Together, these findings suggest alteration in plant community increased sediment yield but that hydrological responses to this event differ at watershed and plot scales, highlighting the geomorphological controls at the watershed scale that determine sediment transport efficiency and storage. Resolving these scalar issues will help identify critical landform features needed to preserve watershed integrity under changing climate conditions.