1. Urbanisation and landuse changes threaten the ecological integrity of rivers and streams globally. A major challenge in such impacted environments is to develop functional indicators for use by waterway managers. We first reviewed cellulose decomposition potential (CDP) as one such indicator, and here present current understanding and highlight the knowledge gaps which hinder its widespread incorporation into programmes monitoring stream health. In a field study, we also evaluated two differing cellulose materials (Shirley soil burial test material and unbleached calico) and measurement techniques. 2. We also investigated the effects of urbanisation and riparian cover on CDP as a standardised indicator of ecosystem function. Cotton fabrics were deployed in paired open and closed reaches across six stream catchments varying in degree of urbanisation (in south-eastern Australia). After 7, 14 and 21 days materials were retrieved and their decomposition assessed in conjunction with a number of physicochemical variables. 3. We observed a strong positive relationship between the decomposition of Shirley and calico materials, thus indicating unbleached calico is an effective substitute for Shirley test cloth, which is no longer available. 4. Across sites, CDP was positively correlated with ammonium concentrations and also, to a lesser extent, with filterable reactive phosphorus and sediment silt and clay content/carbon availability. Despite these relationships, cellulose decomposition was not correlated with urbanisation or riparian cover. 5. Cellulose decomposition is a simple, rapid and sensitive functional indicator of water quality and associated anthropogenic landuse changes and is thus a valuable tool for monitoring stream health.