Analysis of hydrological impacts of land use change raises questions about whether, and how much, such impacts are misrepresented because of errors in river flow observations. In this paper, land use change impacts (represented by changes in watershed storage) and different ranges of discharge measurement error are compared to assess how errors in discharge measurement can potentially mask a land use change impact. Using a watershed from the Ethiopian highlands to exemplify this, we simulated five different levels of land use change impacts with five levels of watershed storage reductions (from 10% to 50% change) and the associated time series of runoff. Different levels of observation error were then introduced into these artificial time series. Comparison was made between every pair, i.e. a time series derived from a certain level of land use change (storage reduction) versus a time series corresponding to a given level of observation error, using a step-change t-test. Significant step-changes between pairs define the detectability of land use change impact. The analysis was made for the entire 30-year time series as well as for the most extreme annual weather conditions. The results showed that for the average year and wettest year, 75% or more error in observed discharge masks the maximum simulated land use change impact on hydrology. In dry years, a 50% error in discharge is enough to mask the same impact. Knowing (and improving) the level of data quality contributes to a better understanding of hydrological uncertainties and improves the precision in assessing land use change impacts. Both of these are essential elements in water resources development planning.