Forested watersheds play a dominant role in the global hydrological cycle. Very few experimental observatories especially in tropical forested regions of India have been undertaken. This study has been initiated for this reason and to gain insights into functioning of the hydrological system in such climatic conditions. This study involves experimental setup of a watershed, it’s monitoring till date, modelling of the hydrological processes observed and the challenges in modelling components of the water balance in this watershed. A Small Experimental Watershed of 4.3 Km2 was set up at Mule Hole, in South India along the Kerala-Karnataka State borders, and is situated inside the Bandipur National park. After an overview of watershed studies, review of literature related to forest watershed studies and processes in the first two chapters, Chapter 3 introduces the study area, Mule Hole Experimental Watershed and explains the methodology used to study this watershed. Model SWAT was used initially to simulate the water balance components. A brief description of the model, methodology adopted and discussion on the results obtained is presented in Chapter 4. The watershed initially modelled as an ungauged watershed using the default parameters in the model, simulated very high groundwater contribution to the runoff. The calibrated model although performed favourably for annual average values and monthly calibration, the daily calibration was unsatisfactory. An auxiliary study on quantification of actual and potential evapotranspiration (ET0) has been carried out in Chapter 5 . Ten methods including Penman-Montieth were compared and evaluated for efficacy of the methods. All methods except for Hargreaves method showed agreement with the Penman-Montieth for annual average values. Priestly-Taylor method was found be the best estimator in comparison with Penman-Montieth method, when used to estimate AET. Adjusted Hargreaves and FAO Blaney -Criddle method were found to be very useful when few or limited climatic data were available for estimation of Potential evapotranspiration. A multidisciplinary approach of estimating recharge consisting of chloride mass balance technique coupled with study of water table fluctuations and groundwater flow analytical modelling has been attempted in Chapter 6. Direct and localized recharge was estimated at 45 mm/yr and indirect recharge 30 mm/yr for the monitored years in the watershed. The low values of recharge rates implied an unexpected very high evapotranspiration rate. It may be inferred that in the absence of groundwater flow to the stream, the recharge joins groundwater flow as outflow of the hydrologic system. An integrated lumped model incorporating the regolith zone and the capability of the tree roots to access this store is presented in Chapter 7. The model was able to simulate the pattern of lag-time between water table rise was observed in shallow piezometers in comparison with hillslope piezometers. The patterns of water table variation among the different hillslope piezometers suggest that they are linked with local processes and not by a regional aquifer dynamics. This study shows that water uptake, combined with the spatial variability of regolith depth, can account for the variable lag time between drainage events and groundwater rise observed for the different piezometers. Chapter 8 discusses the results, conclusions derived from this study and possibility of further scope of studies.