The evaporative loss of intercepted water from the canopy constitutes an important element of the water budget of forests. Starting April 1998, incident precipitation (P), throughfall (TF), and stemflow (SF) were measured in five transects laid out in three small watersheds (~10 ha each) with lower montane rain forest at 1900–2200 m.a.s.l. in South Ecuador. Interception loss (I) was also modeled using the analytical model of Gash (1979). The storage capacity of the leaves and of the trunks and branches, as well as the direct throughfall, and stemflow fractions were determined using conventional regression approaches. In addition, apparent total evaporation (ET) was determined from the water budget for the three watersheds. Mean annual P in the first 4 years ranged between 2363 and 2592 mm among the three watersheds. Average I derived from weekly measurements of P, TF, and SF ranged between 2.0 and 3.5 mm day−1 (i.e. 32–50% of P). Modeled average I was similar to measured values at 2.1–3.4 mm day−1 (32–49% of P). We found that I constituted an important part of the average estimated watershed ET of 3.5–4.3 mm day−1. The high evaporative losses are attributed to a combination of low rainfall intensities, the usual absence of fog, high canopy density, abundant epiphytes, and advected energy from lower elevations.