Tropical montane cloud forests (TMCF) typically experience conditions of frequent to persistent fog. On the basis of the altitudinal limits between which TMCF generally occur (800–3500 m.a.s.l. depending on mountain size and distance to coast) their current areal extent is estimated at ∼215 000 km2 or 6·6% of all montane tropical forests. Alternatively, on the basis of remotely sensed frequencies of cloud occurrence, fog-affected forest may occupy as much as 2·21 Mkm2. Four hydrologically distinct montane forest types may be distinguished, viz. lower montane rain forest below the cloud belt (LMRF), tall lower montane cloud forest (LMCF), upper montane cloud forest (UMCF) of intermediate stature and a group that combines stunted sub-alpine cloud forest (SACF) and ‘elfin’ cloud forest (ECF). Average throughfall to precipitation ratios increase from 0·72 ± 0·07 in LMRF (n = 15) to 0·81 ± 0·11 in LMCF (n = 23), to 1·0 ± 0·27 (n = 18) and 1·04 ± 0·25 (n = 8) in UMCF and SACF–ECF, respectively. Average stemflow fractions increase from LMRF to UMCF and ECF, whereas leaf area index (LAI) and annual evapotranspiration (ET) decrease along the same sequence. Although the data sets for UMCF (n = 3) and ECF (n = 2) are very limited, the ET from UMCF (783 ± 112 mm) and ECF (547 ± 25 mm) is distinctly lower than that from LMCF (1188 ± 239 mm, n = 9) and LMRF (1280 ± 72 mm; n = 7). Field-measured annual ‘cloud-water’ interception (CWI) totals determined with the wet-canopy water budget method (WCWB) vary widely between locations and range between 22 and 1990 mm (n = 15). Field measured values also tend to be much larger than modelled amounts of fog interception, particularly at exposed sites. This is thought to reflect a combination of potential model limitations, a mismatch between the scale at which the model was applied (1 × 1 km) and the scale of the measurements (small plots), as well as the inclusion of near-horizontal wind-driven precipitation in the WCWB-based estimate of CWI. Regional maps of modelled amounts of fog interception across the tropics are presented, showing major spatial variability. Modelled contributions by CWI make up less than 5% of total precipitation in wet areas to more than 75% in low-rainfall areas. Catchment water yields typically increase from LMRF to UMCF and SACF–ECF reflecting concurrent increases in incident precipitation and decreases in evaporative losses. The conversion of LMCF (or LMRF) to pasture likely results in substantial increases in water yield. Changes in water yield after UMCF conversion are probably modest due to trade-offs between concurrent changes in ET and CWI. General circulation model (GCM)-projected rates of climatic drying under SRES greenhouse gas scenarios to the year 2050 are considered to have a profound effect on TMCF hydrological functioning and ecology, although different GCMs produce different and sometimes opposing results. Whilst there have been substantial increases in our understanding of the hydrological processes operating in TMCF, additional research is needed to improve the quantification of occult precipitation inputs (CWI and wind-driven precipitation), and to better understand the hydrological impacts of climate- and land-use change. Copyright © 2010 John Wiley & Sons, Ltd.