Technical Abstract: The Penman-Monteith method suggested by the Food Agricultural Organization in the Irrigation and drainage paper 56 (FAO-56 P-M) was used to evaluate surface runoff and sediment yield predictions by the Soil and Water Assessment Tool (SWAT) model at the outlet of an experimental watershed in Sicily. A sensitivity analysis determined the potential evapotranspiration (PET) parameter as the most sensitive out of 10 parameters impacting surface runoff and sediment volumes in this small Mediterranean watershed. The FAO-56 P-M method was employed in the SWAT model to determine the model’s ability to adequately simulate the water balance within this region from 1997 to 2003 compared with the three PET methods previously existing in SWAT. The water balance was more realistically reflected by the FAO-56 P-M method than by the other PET methods in this watershed. The traditional P-M method incorporated into SWAT overestimated total (surface and base flow) runoff volumes observed during the entire period by approximately 50 percent; total runoff volumes were underestimated by only 17 percent when the FAO-56 P-M method was used. The surface runoff simulation results using the FAO-56 P-M potential evapotranspiration (PET) equation for calculating daily values was good at monthly and event scale (E> 0.75) during both the calibration and validation periods. The simulation of 25 observed sediment yield events was good (E=0.91) and satisfactory (E=0.44) during the calibration and validation period respectively, after adjusting the USLE_C parameter by approximately 90 percent of the original default value. The incorporation of the FAO-56 P-M method has broadened the model’s applicability to watershed’s that are in semi-arid environments with high intensity, short duration rainfall events.