Coalbed methane (CBM) is a type of natural gas produced from coal beds, and its extraction brings massive quantities of water from coal formations to the surface. CBM produced water is elevated in salinity and sodicity and can also contain heavy metals, trace elements, and organic compounds, all of which can be harmful to aquatic life. Discharge of produced water directly into streams is permitted in some CBM basins and has been occurring in the semi-arid Raton Basin of southern Colorado since the 1990s. Field studies assessing the impacts of this type of discharge on stream ecosystems have been few and have yielded equivocal results, and none have been conducted in the Raton Basin. The effects of the surface discharge of CBM produced water on the health of small headwater streams in a 30,000-acre State Wildlife Area in the Purgatoire River watershed of Las Animas County, Colorado were studied. Ten contaminated streams (below discharge points) and six comparable reference streams (having no discharge) were sampled and analyzed for differences in macroinvertebrate community structure and water quality. Non-metric multidimensional scaling ordinations showed significant separation in both water quality and community structure between the two stream types. Based on their concentrations and published regulatory/safe levels, the water quality parameters of concern in the produced water streams were determined to be: alkalinity, conductivity, chloride, pH, fluoride, aluminum, iron, temperature, dissolved oxygen, ammonia, and the sodium adsorption ratio (SAR). Reduced calcium and magnesium were also of concern. The biodiversity metrics Taxa Richness, EPT Richness, and Shannon-Wiener Diversity were all significantly lower in the produced water streams than the natural streams. Also, the Top 5 Taxa Percent was significantly higher, indicating lower diversity due to unevenness. The Colorado Macroinvertebrate Multimetric Index (MMI) did not differ between the two stream types, however. Stoneflies and oligochaetes were significantly reduced in both taxa richness and relative abundance in the produced water streams. Mayflies and caddisflies showed significantly decreased richness but unchanged relative abundance levels, due to certain tolerant taxa proliferating in the produced water streams. The variables showing the strongest correlation to biodiversity and community composition were calcium, SAR, and magnesium, with calcium appearing to have a protective effect on the communities. Though CBM produced water may not be as deleterious to aquatic life as other oil and gas produced waters, and although it is not regulated by EPA effluent guidelines, the present study shows that CBM produced water discharge can have significant and possibly long-lasting effects on small intermittent/ephemeral receiving streams.