This study attempts to estimate the costs and benefits of managing forested catchments in Peninsular Malaysia. Two land use options are simulated in four selected catchments in the Hulu Langat Forest Reserve (HLFR), Selangor. The land use options considered are total protection (TP) or no logging in the catchment and reduced impact logging (RIL). The study computes the potential sedimentation impacts of each option on the dam and water intake ponds in the catchments. It then estimates the benefits derived from logging, hydroelectric power (HEP) generation, water regulatory dam for water treatment, and costs associated with sedimentation under the two options. The estimation made use of data collected from previous studies conducted in adjacent areas with similar hydrological characteristics, and secondary data from published reports by various departmental agencies and personal surveys in the study site. The findings highlighted the substantial external costs from increased sediment yield caused by logging. The RIL land use option in combination with water utilization is the more efficient economic use of forested catchments in the HLFR. It is recommended, however, that efforts be made to internalize the costs of increased sediment yield.