Agricultural production of high value crops in Chile's Central Valley is highly dependent on surface and groundwater resources. They are connected and together form an integrated hydrological system, the individual components of which have to be studied. This research is addressed to answering two questions: 1) to what extent do irrigation and canal seepage contribute to groundwater recharge and 2) what is the influence of the interactions between the Cachapoal River and ground water. The study was carried out from 2003 to 2007 in Peumo Valley (34.3° S, 71.3° W). In winter, the irrigation canal network intercepts and diverts surface runoff, which flows to flat areas and recharges groundwater. In summer, infiltration from the canals recharges the aquifer directly and partially compensates for water uptake from plants and evaporation. The effects of both interactions keep groundwater at a relatively constant level over the whole year. The water balance of the valley is strongly affected by agricultural practices, groundwater recharge mainly originating from irrigation loss (22%) and canal seepage (52%). It is important to know how management decisions, such as change in irrigation practices or canal lining, can affect the hydrological system and agricultural production within the valley.