Research that explores the biological response to urbanization on a site-specific scale is necessary for management of urban basins. Recent studies have proposed a method to characterize the biological response of benthic macroinvertebrates along an urban gradient for several climatic regions in the USA. Our study demonstrates how this general framework can be refined and applied on a smaller scale to an urbanized basin, the Santa Clara Basin (surrounding San Jose, California, USA). Eighty-four sampling sites on 14 streams in the Santa Clara Basin were used for assessing local stream conditions. First, an urban index composed of human population density, road density, and % urban land cover was used to determine the extent of urbanization upstream from each sampling site. Second, a multimetric biological index was developed to characterize the response of macroinvertebrate assemblages along the urban gradient. The resulting biological index included metrics from 3 ecological categories: taxonomic composition (% Ephemeroptera, Plecoptera, and Trichoptera), functional feeding group (shredder richness), and habit (% clingers). The 90^th-quantile regression line was used to define the best available biological conditions along the urban gradient, which we define as the predicted biological potential. This descriptor was then used to determine the relative condition of sites throughout the basin. Hierarchical partitioning of variance revealed that several site-specific variables (dissolved O₂ and temperature) were significantly related to a site's deviation from its predicted biological potential. Spatial analysis of each site's deviation from its biological potential indicated geographic heterogeneity in the distribution of impaired sites. The presence and operation of local dams optimize water use, but modify natural flow regimes, which in turn influence stream habitat, dissolved O₂, and temperature. Current dissolved O₂ and temperature regimes deviate from natural conditions and appear to affect benthic macroinvertebrate assemblages. The assessment methods presented in our study provide finer-scale assessment tools for managers in urban basins.