In the late 1800s, mills in the Washoe Lake area, Nevada, used elemental mercury to remove gold and silver from the ores of the Comstock deposit. Since that time, mercury contaminated waste has been distributed from Washoe Lake, down Steamboat Creek, and to the Truckee River. The creek has high mercury concentrations in both water and sediments, and continues to be a constant source of mercury to the Truckee River. The objective of this study was to determine concentrations of total and methyl mercury (MeHg) in surface sediments and characterize their spatial distribution in the Steamboat Creek watershed. Total mercury concentrations measured in channel and bank sediments did not decrease downstream, indicating that mercury contamination has been distributed along the creek's length. Total mercury concentrations in sediments (0.01–21.43 μg/g) were one to two orders of magnitude higher than those in pristine systems. At 14 out of 17 sites, MeHg concentrations in streambank sediments were higher than the concentrations in the channel, suggesting that low banks with wet sediments might be important sites of mercury methylation in this system. Both pond/wetland and channel sites exhibited high potential for mercury methylation (6.4–30.0 ng g⁻¹ day⁻¹). Potential methylation rates were positively correlated with sulfate reduction rates, and decreased as a function of reduced sulfur and MeHg concentration in the sediments. Potential demethylation rate appeared not to be influenced by MeHg concentration, sulfur chemistry, DOC, sediment grain size or other parameters, and showed little variation across the sites (3.7–7.4 ng g⁻¹ day⁻¹).