Suitable reservoirs and monitoring methods are needed to manage scarce water supplies in dry countries. We assessed here the impact on aquatic macroinvertebrates of the only dam on the Eerste River, which runs through the heart of a biodiversity hotspot, the Cape Floristic Region, South Africa. The dam and associated activities, were the only forms of disturbance in this otherwise pristine area. We sampled over 20,000 macroinvertebrate individuals and illustrated some categorical effects of the impoundment and its effects on macroinvertebrate assemblages. Macroinvertebrate species diversity below the dam was only half of that in the pristine catchment area above the dam. Furthermore, Ephemeroptera, Plecoptera and Trichoptera diversity and abundance dropped to almost zero as a result of the impoundment. In contrast, the abundance of the Diptera family Chironomidae increased substantially below the dam. These changes in macroinvertebrate diversity mirrored those recorded in biologically less diverse areas, but are of major concern in this biodiversity hotspot with its rich endemic fauna. We conclude that such an impoundment, while important for human welfare, results in a high price being paid in terms of loss of local biodiversity.