Soil erosion has been recognized as one of the major threats to our environment and water quality worldwide, especially in China. To mitigate nonpoint source water quality problems caused by soil erosion, best management practices (BMPs) and/or conservation programs have been adopted. Watershed models, such as the Annualized Agricultural Non-Point Source Pollutant Loading model (AnnAGNPS), have been developed to aid in the evaluation of watershed response to watershed management practices. The model has been applied worldwide and proven to be a very effective tool in identifying the critical areas which had serious erosion, and in aiding in decision-making processes for adopting BMPs and/or conservation programs so that cost/benefit can be maximized and non-point source pollution control can be achieved in the most efficient way. The main goal of this study was to assess the characteristics of soil erosion, sediment and sediment delivery of a watershed so that effective conservation measures can be implemented. To achieve the overall objective of this study, all necessary data for the 4,184 km² Daning River watershed in the Three-Gorge region of the Yangtze River of China were assembled. The model was calibrated using observed monthly runoff from 1998 to 1999 (Nash-Sutcliffe coefficient of efficiency of 0.94 and <em>R</em>² of 0.94) and validated using the observed monthly runoff from 2003 to 2005 (Nash-Sutcliffe coefficient of efficiency of 0.93 and <em>R</em>² of 0.93). Additionally, the model was validated using annual average sediment of 2000–2002 (relative error of −0.34) and 2003–2004 (relative error of 0.18) at Wuxi station. Post validation simulation showed that approximately 48% of the watershed was under the soil loss tolerance released by the Ministry of Water Resources of China (500 t·km⁻²·y⁻¹). However, 8% of the watershed had soil erosion of exceeding 5,000 t·km⁻²·y⁻¹. Sloping areas and low coverage areas are the main source of soil loss in the watershed.