AbstractLeaf litter breakdown is a key process, providing matter and energy to communities inhabiting many headwater streams that flow through forests. This detrital pathway is affected by many human landscape transformations; but it is little known about the impact of small headwater reservoirs on leaf litter decay in streams. Alder leaf litter breakdown rates and associated fauna were studied upstream and downstream of five small water supply reservoirs (surface‐release in rainy autumn‐winters), in the Nerbioi‐Ibaizabal drainage basin (Basque Country, Spain), to assess the effect of impoundment on headwater streams function. Breakdown rates were significantly lower below the dams, mainly associated with a reduction of the density and the biomass of shredders. Among the shredders, Nemouridae and especially Protonemura were less abundant downstream of the dam. Alterations in the physicochemical characteristics of the water due to the reservoirs were negligible throughout our study, and temperature showed only slight variations that could not explain the reduction of the rates. The effect on shredders is likely to be related to differences in the riparian environment and flow regulation by the dams. Copyright © 2010 John Wiley & Sons, Ltd.