The Legedadie-Dire catchments in central Ethiopia have experienced soil erosion owing to inappropriate land use practices, population pressure, topography, and intense rainfall. The impacts of Ecosystem-Based Water Supply Management (EBWSM) interventions with five scenarios were assessed using the Soil and Water Assessment Tool (SWAT), which includes grassed filter strips, hillside terraces, reforestation, vegetated buffers, and their combination on runoff and sediment yield. The EBWSM was assigned to selected subbasins and hydrological response units (HRUs) based on land use land cover situations, proximity to water bodies, altitude, and suitability issues. The model was calibrated and validated for inflow discharge using transformed flow data obtained from the Sibilu River Gauging Station and calculated data based on the reservoir volume difference approach. Similarly, sediment yield was calibrated and validated using the data from bathymetric inspection and in situ sediment pit survey results. The SWAT model performed well during the calibration and validation periods. The combined implementation of the two scenarios at a time significantly reduced sediment yield. Hillside terraces in combination with reforestation on bare land, reduced sediment yield by 94% and 90% in Legedadie and Dire catchments, respectively. Similarly, filter strips with 10:45 riparian vegetative buffers cut sediment yield by 91% and 82% in Legedadie and Dire catchments, respectively. Surface runoff decreased between 0.35% and 5.76% for all EBWSM scenarios except for the riparian vegetative buffer, wherein it slightly increased between 1.3% and 2.5%. Overall, the results revealed that the implementation of the EBWSM can reduce surface runoff and sediment yield.