The excessive deposition of fine inorganic sediment (<2 mm) is a major pathway by which agricultural land uses exert pressure on stream ecosystems. However, less well understood are the underlying mechanisms driving threshold biotic responses and the ecological consequences of community changes to sedimentation. Reviewing the literature, I found that sedimentation can affect algal and detrital pathways, and invertebrate community composition may show abrupt shifts with increased sediment. Moreover, functional changes to communities potentially leads to simpler food webs, with altered interactions and decreased ecosystem function. After identifying these knowledge gaps, I conducted survey and experimental research using agricultural streams on the Canterbury Plains of New Zealand’s South Island. Results from my survey of 30 streams along a sedimentation gradient showed that pollution-sensitive invertebrates (% EPT; Ephemeroptera, Plecoptera, Trichoptera) demonstrated threshold responses to sediment that varied with spatial scale, and change-point analysis indicated marked declines beyond 20% fine sediment covering streambed reaches. Structural equation modeling indicated that decreased habitat availability was a key mechanism contributing to these changes. To better understand the functional consequences of altered community structure, I investigated food webs in 12 streams along the gradient. The results showed a compression of community trophic niche space, suggesting that in particular, primary consumers became trophically more equivalent. The simplification of stream food webs with increasing sediment appeared to be the result of functional changes to invertebrate communities, with fewer specialised consumers, and shifts in the availability of basal resources. Using field and laboratory experiments investigating litter breakdown and invertebrate feeding, I found that the net consequence of functionally less diverse stream communities with increased sediment was impaired ecosystem function, demonstrated by a reduction in litter breakdown rates. The reduction of detrital resource availability through burial by sediment in laboratory mesocosm experiments strongly influenced detrital consumption rates, thus leading to reduced growth and survival of detritivorous caddisflies. The survey and experimental results support my postulate that sediment deposition causes environmental stress by degrading benthic habitat and making associated food resources (e.g., periphyton and leaves) less available. Overall, my results have provided new insights into sediment impacts on stream communities and have furthered our understanding of how these changes affect the structure and functioning of stream ecosystems.