Biological soil crusts are a key component of many dryland ecosystems. Following disturbance, biological soil crusts will recover in stages. Recently, a simple classification of these stages has been developed, largely on the basis of external features of the crusts, which reflects their level of development (LOD). The classification system has six LOD classes, from low (1) to high (6). To determine whether the LOD of a crust is related to its ecohydrological function, we used rainfall simulation to evaluate differences in infiltration, runoff, and erosion among crusts in the various LODs, across a range of soil depths and with different wetting pre-treatments. We found large differences between the lowest and highest LODs, with runoff and erosion being greatest from the lowest LOD. Under dry antecedent conditions, about 50% of the water applied ran off the lowest LOD plots, whereas less than 10% ran off the plots of the two highest LODs. Similarly, sediment loss was 400 g m−2 from the lowest LOD and almost zero from the higher LODs. We scaled up the results from these simulations using the Rangeland Hydrology and Erosion Model. Modelling results indicate that erosion increases dramatically as slope length and gradient increase, especially beyond the threshold values of 10 m for slope length and 10% for slope gradient. Our findings confirm that the LOD classification is a quick, easy, nondestructive, and accurate index of hydrological condition and should be incorporated in field and modelling assessments of ecosystem health. Published in 2012. This article is a U.S. Government work and is in the public domain in the USA.