Soil erosion is a drastic problem in the world and more specifically in Ethiopia. In order to reduce soil erosion, estimating and identifying the source area is vital. Therefore, the study was aimed at predicting sediment in Dangishita watershed using the Parameter Efficient Distributed (PED-W) model. For calibration and validation of PED-W water balance module, from 2015 to 2017 years data were used. In addition, PED-W sediment module was also calibrated and validated by using the same years data like that of PED-W water balance module. The PED-W water balance module predicted the stream flow in a good agreement with observed stream flow with R2 of 0.79 and 0.81 and NSE of 0.73 and 0.80 during calibration and validation, respectively. Similarly, the PED-W sediment module predict the sediment yield satisfactory with R2 of 0.70 and 0.52 and NSE of 0.64 and 0.43 during calibration and validation respectively. After well calibration, the PED-W water balance module clearly partitioned the surface flow and sub-surface flow sources. The Dangishita watershed average annual direct runoff, base flow, interflow, recharge, and actual evapotranspiration was estimated to be 158, 372, 328, 699, and 684mm year-1 respectively as well as the average annual sediment yield was predicted as 2.7 ton ha-1 year1. The study has indicated that PED-W model is applicable with micro watersheds and even with limited three years data. Hence could be used for water resource planning and management in Blue Nile Basin. By considering the hotspot areas such as the runoff generating areas, it is possible to reduce the sediment yield below this predicted value by applying the soil conservation management.