Increases in atmospheric CO2 are predicted to raise global and regional temperatures, and produce changes in other climate variables that drive the terrestrial hydrological cycle, most notably precipitation and potential evaporation. At the same time, a warmer world is predicted to result in increased water use in domestic, agricultural and industrial sectors. This article describes the simulated sensitivity of runoff in four mountainous catchments in the southwestern Cape to a range of possible future changes in climate over the next fifty years, and assesses this sensitivity in the light of recent general circulation model predictions of future climate over the region. The 'most likely' streamflow response is then considered in terms of current and projected water resource supply capacity and demand in the Cape Metropolitan Region (CMR). Supply capacity is shown to decrease non-linearly as either precipitation decreases or potential evapotranspiration increases, both of which are the most likely predicted changes in regional climate. More and catchments show a higher sensitivity to these changes. The most likely variation in water supply capacity in the CMR is a reduction of 0.32% per annum to 2020. Using information from other studies, climate change is predicted to raise water demand by 0.6% per annum, which will be superimposed on other demand increases. Under current water resource development plans, the predicted reduced supply and increased demand result in a permanent inability to meet the 1:50 year supply yield in the CMR, with the consequence that the frequency of supply failure will be greater than expected.