The most important function of watersheds in the western U.S. is the capacity to retain soil and water, thereby providing stability in hydrologic head and minimizing stream sediment loads. Long-term soil and water retention varies directly with vegetation cover. Data on ground cover and plant species composition were collected from 129 sites in the Rio Grande drainage of south-central New Mexico. This area was previously assessed by classification of Advanced Very High Resolution Radiometry (AVHRR) imagery. The classification of irreversibly degraded sites failed to identify most of the severely degraded sites based on size of bare patches and 35% of the sites classified as degraded were healthy based on mean bare patch size and vegetation cover. Previous research showed that an index of unvegetated soil (bare patch size and percent of ground without vegetative cover) was the most robust indicator of the soil and water retention function. Although the regression of mean bare patch size on percent bare ground was significant (p < 0.001), percent bare ground accounted for only 11% of the variability in bare patch size. Therefore bare patch size cannot be estimated from data on percent bare ground derived from remote sensing. At sites with less than 25% grass cover, and on sites with more than 15% shrub cover, there were significant relationships between percent bare soil and mean bare patch size (p < 0.05). Several other indicators of ecosystem health were related to mean bare patch size: perennial plant species richness (r = 0.6, p < 0.0001), percent cover of increaser species (r = 0.5, p < 0.0001) and percent cover of forage useable by livestock (r = 0.62, p < 0.0001). There was no relationship between bare patch size and cover of species that are toxic to livestock. In order to assess the ability of western rangeland watersheds to retain soil and water using remote sensing, it will be necessary to detect and estimate sizes of bare patches ranging between at least 0.5 m in diameter to several meters in diameter.