A detailed study of the water balance of a lichen-heath tundra underlain by permafrost was begun in September 1976 near Schefferville, Quebec. The study was centred on a 0.9 ha hillside and an adjacent 100 ha catchment. The study revealed that the transfer of latent heat by moisture transport occurs during the development of the active layer as well as during freeze-up. The transfer of sensible and latent heat does not have a major impact on the maximum depth of the active layer on hillslopes, but does strongly control the maximum depth of thaw in the valley bottoms. The study also demonstrated that a simple form of the Priestley-Taylor model yields accurate estimates of evapotranspiration from several types of surfaces. A water budget model based on the Priestley-Taylor model gave an accurate estimate of the seasonal runoff from the experimental catchment. A daily water budget model indicated that a significant proportion (31%) of the net runoff (precipitation minus evapotranspiration) is stored within the still-frozen part of the active layer (primarily in the valley bottoms) early in the thaw season. That stored water is released only when the active layer approaches its maximum depth of thaw.