Stream-tracer injections were used to examine the effect of channel morphology and changing stream discharge on hyporheic exchange flows. Direct observations were made from well networks to follow tracer movement through the hyporheic zone. The reach-integrated influence of hyporheic exchange was evaluated using the transient storage model (TSM) OTIS-P. Transient storage modelling results were compared with direct observations to evaluate the reliability of the TSM. Results from the tracer injection in the bedrock reach supported the assumption that most transient storage in headwater mountain streams results from hyporheic exchange. Direct observations from the well networks in colluvial reaches showed that subsurface flow paths tended to parallel the valley axis. Cross-valley gradients were weak except near steps, where vertical and cross-valley hydraulic gradients indicated a strong potential for stream water to downwell into the hyporheic zone. The TSM parameters showed that both size and residence time of transient storage were greater in reaches with a few large log-jam-formed steps than in reaches with more frequent, but smaller steps. Direct observations showed that residence times in the unconstrained stream were longer than in the constrained stream and that little change occurred in the location and extent of the hyporheic zone between low- and high-baseflow discharges in any of the colluvial reaches. The transient storage modelling results did not agree with these observations, suggesting that the TSM was insensitive to long residence-time exchange flows and was very sensitive to changes in discharge. Disagreements between direct observations and the transient storage modelling results highlight fundamental problems with the TSM that confound comparisons between the transient storage modelling results for tracer injections conducted under differing flow conditions. Overall, the results showed that hyporheic exchange was little affected by stream discharge (at least over the range of baseflow discharges examined in this study). The results did show that channel morphology controlled development of the hyporheic zone in these steep mountain stream channels. Copyright © 2005 John Wiley & Sons, Ltd.