Effective watershed planning requires an understanding of the hydrology and soil erosion processes. In temperate climates, these processes are well understood. However, the humid tropical monsoon climates the understanding of watershed processes is incomplete especially in the humid volcanic regions with a geology that is extremely variable. The Ethiopian highlands is one of those regions. To feed the increasing population in the highlands, farmland is cropped continuously resulting in severe land degradation. To reverse the degradation, government-sponsored soil and water conservation campaigns are carried out yearly. However, sediment concentrations in the rivers are not decreasing. One of the reasons is that the major sediment sources are gullies in the periodically saturated bottomlands while conservation programs target the uplands. Since few studies on reducing erosion from gullies have been carried in the (sub) humid highlands, the objective of this dissertation is to improve the effectiveness of watershed management practices in reducing sediment loads by testing gully head control practices and investigate hydrological processes leading the valley saturation and associated saturated excess overland flow. The study was conducted in the 4.14 km2 Ene-Chilala watershed in the headwaters of Birr River, located south-west of Lake Tana for four years. The infiltration rate, piezometric water levels and discharge from two nested watersheds and at the outlet were measured during the monsoon rain phase The dissertation discusses results of the study and is composed of five chapters. Chapter 1 introduces the research. Chapter two connects the hillslope flow processes with the runoff generation on the periodically saturated bottom lands. Infiltration rates on the hillslope exceeded the rainfall intensities. The excess rain formed a perched water table and flows as interflow down the slope and surfaces in the value bottom perched water tables were predicted by summing up the recharge over the travel time from the watershed divide. Interflow travel times ranged from a few days for piezometers close to the boundary to 40 days near the outlet. The prediction of the discharge was based on adding the interflow component and overland flow from the saturated soil. The agreement between the predicted and available observed discharge was good. Chapter 3 reports on gully head retreat rates and determinants of gully head advancement. The result shows that gullies were actively eroding due to groundwater at shallow depths. The maximum head retreat was 23 m, of which about 45% occurred in August and 24% in July when the surrounding soil was fully saturated. The fourth chapter assesses the effectiveness of gully head stabilization practices. Heads were regraded to a 1:1 slope. Additional practices implemented were adding either riprap or vegetation or both on the regraded heads and stabilizing the gully bed downstream. The median yearly head retreat of the control gullies was 3.6 m yr−1. Vegetative treatments prevented gully incision by trapping sediments but did not stop the upslope retreat. The gully heads protected by riprap did not eroded. Regrading the slope and adding riprap was most effective in controlling gully head retreat. Finally, in the fifth chapter presents the overall conclusions and the recommendation for future research.