Over the past two decades, biological assessment has been widely adopted as a tool for comprehensive monitoring of ambient water quality, and increasingly it is used for management and regulation. Presently, biocriteria are central to the pre-decisional draft regulatory framework the US Environmental Protection Agency is developing under a consent decree to implement Section 316(b) of the Clean Water Act. With the increasing integration of multi-metric bioassessment and biocriteria into environmental regulation, it becomes important to critically review the performance of the methods to ensure they are robust and reliable tools for determining water body impairment. This paper examines the strengths and weaknesses of current approaches to bioassessment, focusing on issues that derive from recent advances in theoretical and applied ecology. Two critically important insights into the structure and function of ecosystems are: (1) the dynamic character of ecosystems; and (2) the significance of context and scale. Ecological dynamics produce spatio-temporal variability, which presents significant challenges to the development of biological criteria. This challenge is highlighted by the large percentage of sites potentially affected by arbitrary decisions sometimes made in setting biocriteria thresholds. Multi-metric bioassessment has not taken adequate account of the multi-scaled nature of ecological systems. Consideration of spatial scale will be especially important as multi-metric bioassessment methods originally developed in streams are adapted to larger, more open systems such as large rivers, estuaries, and coastal waters, and for regulation of cooling water intake structures.