Wetlands are small but important areas in highland regions. They provide critical water storage for sustaining the flow of streams and rivers within highlands and into surrounding lowlands. This paper explores the problems faced in achieving sustainable wetland management in two countries in the Nile headwaters, Ethiopia and Rwanda. It shows how communities in these areas interact with wetlands and obtain benefits. The paper explains how in south-west Ethiopia sustainable management systems based on indigenous knowledge have been developed. However, these systems are under threat because of population growth, globalisation and state policies. As a result, some wetlands have become degraded, losing many of their hydrological functions. However, other sustainable wetland use regimes. In Rwanda more intensive transformation of wetlands is occurring as a result of land shortage and food insecurity. However, wetland use is troubled by flooding, low flows and declining soil fertility, and there is little evidence of sustainable use regimes being developed. This paper suggests that if both the hydrological functions and livelihood benefits of these wetlands are to be sustained, a new approach to wetland management must be developed. It should build on local knowledge and management systems, and recognise the potential of multiple use regimes for creating a symbiosis between wetland livelihood benefits and maintenance of hydrological functioning. Such land use regimes must take a holistic view of wetlands and their catchments, and must build upon democratic local level institutions, which represent all stakeholders, locally and downstream.