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Freshwater shrimp dominate the faunal biomass of many tropical headwater streams: however, their role in community organization is unclear. Enclosure/exclosure experiments in a montane Puerto Rican stream examined direct and indirect effects of two dominant taxa of atyid (Atyidae) shrimp, Atya lanipes Holthius and Xiphocaris elongata Guerin-Meneville. Both shrimp taxa caused significant reductions in sediment cover on rock substrata, reducing sedimentation and enhancing algal biovolume on clay tiles in cages. When tiles incubated in shrimp exclosures for 2 wks were placed outside of cages, atyid shrimp removed 100% of sediment cover within a 30 min. observation period. Atyid shrimp appear to play an important role in stream recovery after high discharge events in rapidly removing sediments and detritus deposited on benthic substrata in pools. We evaluated the mechanism by which A. lanipes influences algae and benthic insects by comparing patterns of algal biomass, taxonomic composition and shrimp-presence treatments both with and without manual sediment removal. The shrimp exclusion treatment without manual sediment removal had significantly lower algal biomass and greater sedimentation than all other treatments. The treatment in which shrimp were excluded but sediment was manually removed, however, accrued almost the same algal biovolume as the shrimp enclosure treatment, supporting the hypothesis that sediment removal enhances the biovolume of understory algal taxa. Algal community composition was similar between stream bottom bedrock exposed to natural densities of shrimp and all experimental treatments for both Atya and Xiphocaris: a diatom community strongly dominated (78-95%) by the adnate taxon, Achnanthes lanceolata Breb ex. Kutz. Atyid shrimp are important in determining the distribution and abundance of benthic insects through both direct and indirect effects. Sessile, retreat-building chironomid larvae (Chironomidae: Diptera) are negatively affected by both A. lanipes and X.elongata, through direct removal by foraging activities and/or indirectly through depression of sediment resources available to larvae for the construction of retreats. In contrast, the mobile grazer, Cleodes maculipes (Baetidae: Ephemeroptera) was not adversely affected and atyid shrimp have the potential to exert positive indirect effects on this taxon by facilitating its exploitation of algal resources and/or through enhancement of understory algal food resources through sediment removal.