Acid mine drainage (AMD) is frequently linked with changes in macroinvertebrate assemblages, but the relative contribution of water and sediment to toxicity is equivocal. We have shown that the macroinvertebrate fauna of Neubecks Ck, a mine impacted stream in New South Wales, Australia, was much poorer than in two reference streams. Multivariate RELATE analyses indicated that the patterns in the biological data were more strongly correlated with the concentrations of common metals in the surface water than the pore water of these streams. From this we hypothesised that the water was more toxic to the biota than the sediment and we tested this hypothesis with a sediment transplant experiment. Sediment from Neubecks Ck that was placed in reference streams retained high concentrations of metals throughout the experiment, yet supported a macroinvertebrate assemblage similar to that in the reference streams. Sediment from the reference streams that was placed in Neubecks Ck supported few, if any, animals. This indicates that water in Neubecks Ck is toxic to biota, but that sediment is able to support aquatic biota in clean water. Therefore, remediation should focus on improving water quality rather than sediment quality.