Streamflow augmentation has the potential to become an important application of recycled water in water scarce areas. We assessed the economic and ecological merits of a recycled water project that opted for an inland release of tertiary-treated recycled water in a small stream and wetland compared to an ocean outfall discharge. Costs for the status-quo scenario of discharging secondary-treated effluent to the ocean were compared to those of the implemented scenario of inland streamflow augmentation using recycled water. The benefits of the inland-discharge scenario were greater than the increase in associated costs by US$1.8M, with recreational value and scenic amenity generating the greatest value. We also compared physical habitat quality, water quality, and benthic macroinvertebrate community upstream and downstream of the recycled water discharge to estimate the effect of streamflow augmentation on the ecosystem. The physical-habitat quality was higher downstream of the discharge, although streamflow came in unnatural diurnal pulses. Water quality remained relatively unchanged with respect to dissolved oxygen, pH, and ammonia-nitrogen, although temperatures were elevated. Benthic macroinvertebrates were present in higher abundances, although the diversity was relatively low. A federally listed species, the California red-legged frog (Rana draytonii), was present. Our results may support decision-making for wastewater treatment alternatives and recycled water applications in Mediterranean climates.