A newly developed watershed environmental hydrology (WEHY) model is presented as a state-of-the-art nonpoint source (NPS) model. The model consists of hydrologic and environmental modules, and describes environmentally relevant hydrologic processes based upon physically based governing equations to model the fate of pollutants such as sediment and phosphorus in the watershed. Unlike other physically based NIPS models, the WEHY model is unique in its upscaling approach to the governing equations of hydrologic and environmental processes, which results in the governing equations that are compatible with the computational grid resolution while accounting for subgrid heterogeneities through upscaled model parameters. Upscaling was performed by means of a technique called ensemble averaging. The model was tested at the Ward Creek Watershed in Lake Tahoe Basin for its performance in a subalpine watershed setting. Comparisons of predicted and observed values were in good agreement and showed good promise of the approach used in the development of the model. Because of the physical basis of the WEHY model and its use of upscaled conservation equations, the model has the advantage of being applicable to ungauged basins and to large watersheds.