Efficient investment in salinity mitigation requires an understanding of how different landscapes respond to alternative land and water use options at both a regional and a broader scale. A simulation modeling framework that integrates the relationships between land use, vegetation cover, surface and groundwater hydrology and agricultural returns was developed. The model presented here has been used to estimate the direct and external benefits of improved water use efficiency in the Mallee irrigation areas of South Australia. Upstream investments in water use efficiency can generate substantial external benefits to downstream users through improved water quality. Given the non-exclusive and diffuse nature of these benefits, achieving the socially optimal level of improvement in water quality is likely to require institutional arrangements that promote collective investment and public expidenture.