Restoration of water quality in deforested watersheds is a major environmental and economic challenge in many parts of the world. In south-western Australia water quality issues manifest as salinisation, where reactivation of groundwater systems has occurred post-deforestation with the consequent discharge of salts stored in deep regolith into rivers. Prior to deforestation the stream salinity of the Denmark River (a forested watershed of 502 km2) was between 150 and 350 mg L−1TDS (Total Dissolved Solids) and was developed as a small water supply with potential for a much larger development. By the 1970s, 20% of deep rooted vegetation in the watershed was removed resulting in annual flow-weighted stream salinity of 1500 mg L−1TDS making the river unsuitable as a water supply. Two main policy approaches were used to restore this watershed: (1) the control of further deforestation on private land through regulation; and (2) a program to encourage private reforestation with eucalypt pulp-wood plantations. By 2010, 14.5% of the watershed was reforested leaving only 5.5% still deforested, with a strong relationship between streamflow and stream salinity and the amount of reforestation. River salinity had fallen to 500 mg L−1 TDS by 2017. Although streamflow had fallen from a mean 28.6 GL yr−1 in 1985–1990 to 13.6 GL yr−1 in 2012–2017 this was with water that was potable. The challenge into the future is to ensure the lower stream salinity is maintained through maintenance of forest cover. Importantly, this paper demonstrates that stream salinity can be reversed following deforestation if an appropriate scale of reforestation is deployed.