ABSTRACT Watershed forests offer crucial ecosystem services for hydrological systems. This study provides comprehensive insights into sediment retention within the Mangla watershed. We analyzed spatial layers from Sentinel-2 imagery, land use data, weather, soil properties, and terrain characteristics to identify soil erosion and sediment delivery hotspots. Using the Integrated Valuation of Environmental Services and Tradeoffs-sediment delivery ratio (InVEST-SDR) model, we quantified sediment exported to the downstream Mangla Dam. The InVEST-sediment retention (InVEST-SR) model estimated the sediment retention capacity of various land cover types. Our findings show that forests retained 20,300.70 tons of sediment in 2017 and 29,887.60 tons in 2021, making them the primary source of sediment retention. The economic value of this ecosystem service was approximately USD 2.59 trillion for 973,168.51 ha of forest in 2017 and USD 4.02 trillion for 1,023,927 ha in 2021. Understanding the dynamics and economic value of this forest ecosystem service at a large watershed scale provides essential insights for decision-making and conservation efforts aimed at protecting water resources and ecological integrity.