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The U.S. Environmental Protection Agency (EPA) and European Union (EU) are engaged in an extensive effort to assess and improve surface water quality, including decreasing risks to public health from water-borne pathogens. In the absence of data for specific pathogens, indicators of fecal contamination such as Escherichia coli are utilized to assess water quality. However, the relationship(s) between indicators and pathogens, and their population dynamics in watersheds are poorly understood. We undertook this monitoring study in a small rural watershed with inputs from wildlife and grazing cattle to (i) evaluate fluctuations in E. coli populations and (ii) assess the use of virulence factors typically associated with pathogenic E. coli as indicators of water quality. Generic E. coli concentrations were substantially higher in agricultural than in forested sites indicative of the much higher fecal inputs from grazing cattle vs. wildlife. However, high E. coli concentrations found in stream sediments suggest that these may be relatively stable habitats for E. coli growth and survival and be responsible for some portion of the downstream contamination. A general decrease was observed in E. coli concentrations from summer through fall and winter. This decrease was partially due to decreased wildlife activity and cattle densities. However, an additional factor was likely flushing of sediment-borne E. coli caused by high discharge levels (due to high rainfall) beginning in late fall. Virulence factors associated with pathogenic E. coli (O157 serogroup, eae gene, and stx1/2 genes) were prevalent throughout the watershed; population dynamics were similar to generic E. coli. However, no definitive conclusions could be drawn regarding the presence or absence of specific pathogenic E. coli strains. Also, no correlation was observed between concentrations of generic E. coli and the eae gene at agricultural sites, suggesting that generic E. coli data cannot be used to predict the risk of pathogen exposure. Although our results are consistent with the well established principle that fecal runoff and deposition are the predominant source of water-borne E. coli contamination, they also illustrate the difficulty associated with the interpretation of water-borne E. coli data. Watershed water quality models should account for E. coli growth and survival in indigenous habitats and flushing of sediment-borne E. coli from watersheds, as well as for fecal runoff.