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In Denmark, as in many other European countries, the diffuse losses of nitrogen (N) and phosphorus (P) from the rural landscape are the major causes of surface water eutrophication and groundwater pollution. The export of total N and total P from the Gjern river basin amounted to 18.2 kg ha−1 and 0.63 kg P ha−1 during June 1994 to May 1995. Diffuse losses of N and P from agricultural areas were the main nutrient source in the river basin contributing 76% and 51%, respectively, of the total export. Investigations of nutrient cycling in the Gjern river basin have revealed the importance of permanent nutrient sinks (denitrification and overbank sedimentation) and temporary nutrient storage in watercourses. Temporary retention of N and P in the watercourses thus amounted to 7.2–16.1 g N m−2 yr−1 and 3.7–8.3 g P m−2 yr−1 during low-flow periods. Deposition of P on temporarily flooded riparian areas amounted from 0.16 to 6.50 g P m−2 during single irrigation and overbank flood events, whereas denitrification of nitrate amounted on average to 7.96 kg N yr−1 per running metre watercourse in a minerotrophic fen and 1.53 kg N yr−1 per linear metre watercourse in a wet meadow. On average, annual retention of N and P in 18 Danish shallow lakes amounted to 32.5 g N m−2 yr−1 and 0.30 g P m−2 yr−1, respectively, during the period 1989–1995. The results indicate that permanent nutrient sinks and temporary nutrient storage in river systems represent an important component of river basin nutrient budgets. Model estimates of the natural retention potential of the Gjern river basin revealed an increase from 38.8 to 81.4 tonnes yr−1 and that P-retention increased from −0.80 to 0.90 tonnes yr−1 following restoration of the water courses, riparian areas and a shallow lake. Catchment management measures such as nature restoration at the river basin scale can thus help to combat diffuse nutrient pollution.