1. The UK's new River Habitat Survey (RHS) is founded upon the assumption that species depend upon habitats and that higher habitat heterogeneity supports higher biodiversity in river channels, riparian zones and floodplains. 2. The paper reviews the evidence for this assumption. Physical habitats—of substrate and velocity conditions—are created by predictable physical forces acting within the river ‘continuum’, modified by colonization and metabolism of biota. Numerous studies have shown that habitats have distinct biotic assemblages. 3. River management has, in the past, generally simplified habitat structure but, in order to mitigate the worst effects and restore damaged rivers, it is necessary to have a sound understanding of this term as it applies to all components of the river system (channel, riparian zone and floodplain). 4. RHS has a nested approach to river channel habitats and at one level, ‘functional habitats’, the link between river processes and river biodiversity has been demonstrated. ‘The functional habitats’ concept is now used in river management for mitigation of engineering channel works and restoration of drought-damaged rivers. 5. Similar nested approaches still need to be developed in the riparian zone and river-influenced floodplain. Sustainable river management needs to come to terms with the dynamic nature of river habitat change as well as to quantify the economic benefits which habitats provide. © 1998 John Wiley & Sons, Ltd.