Low flow generation from the uplands of has been identified as the one of the most important watershed issues in Southeast Asia. The aim of this work was to examine the effect of fallow regrowth on the hydrological behaviour of a fragmented landscape, under shifting cultivation with short fallows, which is a system typical of the northern Lao P.D.R. uplands. The study focused specifically on analysing and understanding periods of low flow during the dry and wet seasons. After 6 years of hydrological and land use monitoring (2002-2007) in the Houay Pano headwater catchment, we can conclude that fallow regrowth significantly affects the hydrological regime of the catchment. The main results obtained can be summarised as follows: (i) Development of fallow vegetation induces remarkable changes in the annual water balance, in particular, it increases the fraction of incident rainfall redirected by transpiration and canopy interception; (ii) Increased root water uptake subsequent to perennial vegetation growth, reduces groundwater recharge and subsurface reserves; it also lowers the water table, hence limiting stream feeding by shallow groundwater; (iii) This groundwater depletion leads to a drop in the annual stream water yield due to a decrease in wet season inter-stormflow and dry season baseflow; (vi) Subsurface groundwater is the major contributor to floods. Overland flow (surface runoff) contributed most significantly to flood waters during rainfall events in the first two years of fallow regrowth. This study showed that water resources in the uplands of northern Laos are sensitive to land use and hence potentially vulnerable to inappropriate management. The conclusions made in this paper go a step towards predicting the likely consequences of the Government's current effort to eradicate shifting cultivation and replace it with perennial crops such as teak plantations.