Communities nationwide are facing increased responsibility for controlling stormwater runoff, and, subsequently, rising costs of stormwater management. In this report we describe and test a methodology that can be used by communities to focus limited budgets on the most efficient and ecologically-effective installation of stormwater management practices. The overall project has two primary objectives: (1) to test the use of an auction to cost-effectively allocate stormwater management practices among landowners, and (2) to determine the effectiveness of the resulting implementation in terms of hydrological, water quality, and ecological measures. Here, we describe the theories, methods, and criteria used to distribute rain gardens and rain barrels to homeowners in a small, midwestern watershed. The first round of the reverse auction in 2007 resulted in 50 rain gardens and 100 rain barrels installed at 67 of the approximately 350 residential properties in the experimental watershed. In 2008, the auction was repeated and we accepted bids for an additional 35 rain gardens and 74 rain barrels. Stormwater management practices were distributed relatively evenly throughout the watershed and are expected to result in significant improvements in stream quality. We describe our monitoring approach, including 1) parcel-scale hydrology and water quality monitoring of selected rain gardens, and 2) stream monitoring following before-after-control-impact approach for assessing the hydrological, water quality, and biotic responses to stormwater management installation. By employing a multidisciplinary approach to watershed management, the case study offers an example of stormwater management that should be readily transferable to other residential watersheds.