The time-controlled rotational grazing (TC grazing) has become popular in Australia and elsewhere in the world to provide graziers and ranchers with improved productivity over traditional practices. However, this grazing system, which involves short periods of intensive grazing, has raised concerns about sustainability and environmental impacts on water and soil resources, and ecosystem health generally. A runoff experiment at the catchment scale was established on the grazing property ‘Currajong’ in the south-east region of Queensland, Australia, to investigate the effects of continuous and TC grazing on runoff and sediment generation from 2001 to 2006. Sediment loss was reduced significantly under TC grazing compared with continuous grazing irrespective of the size of runoff events. This effect was more pronounced in the catchments with soils of gentler slopes and greater depths. The reduction in soil erosion was achieved despite the fact that the increase in ground cover under TC grazing had little effect on runoff coefficient or runoff depth. Decrease in runoff in relation to the increase in surface cover only occurred for small events, whereas for large rainfall events, runoff generated irrespective of the level of ground cover. This study showed that ground cover is a key driver in reducing sediment concentration, resulting in a significantly lower sediment loss under TC grazing. In the study area a minimum of 70% of surface cover as a threshold appeared to be needed to efficiently protect the soil surface from erosive forces of rain and runoff and to control soil erosion. The results also indicate that TC grazing has a superior capability to produce and maintain a higher level of ground cover (up to 90%) than continuous grazing (up to 65%). The long rest periods in TC grazing are seen as the major contributor to soil and pasture recovery after intensive defoliations by grazing animals, leading to an increase in above-ground organic material and thus surface cover over time.