The physical and biological conditions of stream reaches in 16 watersheds within the Lake Champlain Basin of Vermont, United States, were assessed and analyzed for a response to total impervious area (TIA) at multiple spatial scales. Natural gradients (e.g., channel slope) and human impacts to channel boundary conditions (e.g., bank armoring) were considered to ensure a robust test of the Impervious Cover Model for upslope TIA. The response of geomorphic stability and sensitive macroinvertebrates to TIA was nonlinear and significant (p < 0.001), decreasing rapidly at 5% TIA. The effect of urbanization on stream condition was shown to interact significantly with drainage area and channel slope using the analysis of covariance (ANCOVA) (p < 0.05). Hydraulic geometry regressions for urban and rural watersheds and ANCOVA were used to describe a significant watershed scale-dependent response of channel width to urbanization (p = 0.001). The analysis of macroinvertebrate data from reaches in different stages of channel evolution indicated that stable reaches supported greater richness of pollution intolerant species (p < 0.001) and overall taxa richness (p < 0.01) than unstable reaches, and that biotic integrity improves as channels regain stability during their evolution into a state of quasi-equilibrium. We conclude that macroinvertebrate communities can respond positively to channel evolution processes leading to natural channel restabilization.