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Keduang Sub-Watershed is the greatest sediment producer into Gajah Mungkur Reservoir. One of the ways to reduce sedimentation is applying soil and water conservation in the mountainous area, i.e. applying terrace paddy fields. There are so many advantages of utilizing terrace paddy fields for the sustainability of the environment due to its capability to retain water and reduce surface run-off. The objective of this study is to simulate the discharge and sedimentation process of the watershed (Keduang Sub-Watershed) containing terrace paddy fields using the Soil and Water Assessment Tool (SWAT) model that integrated with Geographic Information Systems (ArcSWAT version 2012.10.4.21). Model calibration and validation were performed for monthly periods using Sequential Uncertainty Fitting 2 (SUFI-2) within SWAT-CUP that was using observed streamflow data at catchment outlet. Model performance indicator used in this research were Nash-Sutcliffe Efficiency (NSE) and the coefficient of determination (R2). The calibration and validation outputs for monthly simulation showed good performances for discharges. From the simulation of the SWAT model, terrace paddy fields can reduce sedimentation around 37.96 % compared with the result of simulation without applying terrace paddy. It indicated that terrace paddy fields have a significant role in environmental issues, especially in the mountainous area.