Artisanal and small-scale gold mining (ASCGM) provides a livelihood for many communities worldwide, but it has profound environmental impacts, especially on the quality of nearby water resources. This study assessed the impacts of ASCGM on the physicochemical quality of water and sediments from Kitengure stream, Buhweju Plateau, Western Uganda. Surface water (n = 94) and superficial sediments (n = 36) were sampled between October 2021 and January 2022 from three different sections of Kitengure stream (upstream, midstream around the ASCGM area, and downstream). The samples were analyzed for various physicochemical parameters and selected potentially toxic elements (PTXEs), namely: zinc (Zn), cadmium (Cd), lead (Pb), copper (Cu), and arsenic (As). A health risk assessment was performed using the hazard index and incremental life cancer risk methods. Pearson’s bivariate correlation, geoaccumulation, and pollution indices were used to establish the sources and potential risks that PTXEs in sediments could pose to aquatic organisms. The results indicated that water in Kitengure stream draining the ASCGM site was highly colored (1230.00 ± 134.09 Pt-co units; range = 924.00–1576.00 Pt-co units) and turbid (194.75 ± 23.51 NTU; range = 148–257 NTU). Among the five analyzed PTXEs, only Cd (0.082 ± 0.200–0.092 ± 0.001 mg/L) and Cu (0.022 ± 0.004–0.058 ± 0.005 mg/L) were detected in water, and Cd was above the permissible limit of 0.003 mg/L for potable water. Upon calculating the water quality index (WQI), the water samples were categorized as very poor for upstream samples (WQI = 227) and unfit for use (WQI = 965 and 432) for midstream and downstream samples, respectively. In sediments, the mean concentration ranges of Zn, Cd, Pb, Cu, and As were 0.991 ± 0.038–1.161 ± 0.051, 0.121 ± 0.014–0.145 ± 0.025, 0.260 ± 0.027–0.770 ± 0.037, 0.107 ± 0.017–0.422 ± 0.056, and 0.022 ± 0.002–0.073 ± 0.003 mg/kg, respectively, and they were all below their average shale, toxicity reference, and consensus-based sediment quality guidelines. Geoaccumulation indices suggested that there was no enrichment of the elements in the sedimentary phase and the associated ecological risks were low. However, there were potential non-carcinogenic health risks that maybe experienced by children who drink water from Kitengure stream. No discernable health risks were likely due to dermal contact with water and sediments during dredging or panning activities. It is recommended that further studies should determine the total mercury content of water, sediments, and crops grown along the stream as well as the associated ecological and human health risks.