Intensive human activities have caused dramatic land use/cover change (LUCC), altering eco-hydrological processes. While many studies have quantified the contributions of LUCC to runoff and sediment yield at the watershed level, the underlying mechanism remains less reported. In this study, we analyzed the trends in hydrometeorological variables and identified change points from 1960 to 2015 at four stations, i.e., Qingyangcha (QYC), Lijiahe (LJH), Caoping (CP), and Suide (SD, outlet station), in the Dali River watershed (DLRW) on the Loess Plateau, China. The modified double mass curve (MDMC) was applied to separate the contribution of LUCC and climate variability on runoff and sediment yield. Furthermore, compounded landscape indices integrating watershed slope and land cover were developed to assess the different responses of runoff and sediment yield to LUCC in nested watersheds. Results revealed that annual runoff and sediment yield in DLRW decreased significantly (p < 0.05) since 1960, primarily driven by LUCC. Varying LUCC magnitudes resulted in different hydrological responses across the four stations with the average relative contributions of LUCC to runoff at QYC, LJH, CP, and SD being 62.33%, 65.18%, 78.00%, and 70.13%, respectively, and to sediment yield being 85.65%, 74.42%, 80.40%, and 78.16%. Compounded landscape indices showed stronger correlations with runoff, sediment yield, and LUCC-driven changes than traditional indices, effectively capturing the hydrological impacts of LUCC. This study enhances our understanding of the interactions between runoff and sediment yield responses to landscape patterns and offers insights for watershed management regarding land planning.