Recent studies show that data from the Gravity Recovery and Climate Experiment (GRACE) is promising for basin- to global-scale water cycle research. This study provides varied assessments of errors associated with GRACE water storage estimates. Thirteen monthly GRACE gravity solutions from August 2002 to December 2004 are examined, along with synthesized GRACE gravity fields for the same period that incorporate simulated errors. The synthetic GRACE fields are calculated using numerical climate models and GRACE internal error estimates. We consider the influence of measurement noise, spatial leakage error, and atmospheric and ocean dealiasing (AOD) model error as the major contributors to the error budget. Leakage error arises from the limited range of GRACE spherical harmonics not corrupted by noise. AOD model error is due to imperfect correction for atmosphere and ocean mass redistribution applied during GRACE processing. Four methods of forming water storage estimates from GRACE spherical harmonics (four different basin filters) are applied to both GRACE and synthetic data. Two basin filters use Gaussian smoothing, and the other two are dynamic basin filters which use knowledge of geographical locations where water storage variations are expected. Global maps of measurement noise, leakage error, and AOD model errors are estimated for each basin filter. Dynamic basin filters yield the smallest errors and highest signal-to-noise ratio. Within 12 selected basins, GRACE and synthetic data show similar amplitudes of water storage change. Using 53 river basins, covering most of Earth's land surface excluding Antarctica and Greenland, we document how error changes with basin size, latitude, and shape. Leakage error is most affected by basin size and latitude, and AOD model error is most dependent on basin latitude.