Pollution of Caoqiao River in Taihu Basin has become one of increasingly serious problems, which affects sustainable development of this region. A model was constructed based on the characteristics of the small watershed and segmentation of water polution, and applied to calculate the capacity of the water environment and the quantity of pollutants reduction. In this case, it is proposed a segment control pattern of river pollution and a water environmental capacity control pattern of watershed management. An operational plan for controlling nitrogen and phosphorus in rivers was established, thus the key project and the annual measurement were decided, and the annual reduction plan of pollution source was implemented, which has provided the scientific basis for better management of pollution control for small basin.