The Santa Margarita River watershed encompasses approximately 750 square miles in northern San Diego and southwestern Riverside counties.  The watershed contains a variety of nearly intact habitats including chaparral-covered hillsides, riparian woodlands, and coastal marshes.  Of the total watershed area, approximately 27% is within San Diego County.  The Santa Margarita River is formed near the City of Temecula in Riverside County at the confluence of the Temecula and Murrieta creek systems.  Once formed, the majority of the Santa Margarita River main stem flows within San Diego County through unincorporated areas, the community of Fallbrook, and the Marine Corps Base Camp Pendleton.  The lower river and estuary have largely escaped the development typical of other regions of coastal Southern California, and are therefore able to support a relative abundance of functional habitats and wildlife.

The upper watershed basin lies in Riverside County, one of the fastest growing areas in California.  In the absence of effective planning measures, this rapid development will likely exasperate surface water quality problems.  Presently, the Rainbow Creek tributary and the Santa Margarita Lagoon are listed on the Clean Water Act section 303(d) list due to excessive inputs of nutrients from a variety of sources including agriculture, nursery operations, municipal wastewater discharges, urban runoff, septic systems, and golf course operations.  Other serious water quality and environmental concerns in the watershed include excessive sedimentation from development and agricultural areas, groundwater degradation and contamination with nitrates and other salts, habitat loss, channelization, flooding and scour.

There are many beneficial water uses within the Santa Margarita Watershed as designated in the State Water Resources Control Board's San Diego Region Basin Plan.