The terrestrial carbon (C) cycle remains the least constrained component in the global C cycle, partly due to the difficulty of quantifying C sources and sinks in complex terrain. In this paper, we used observations at the Shale Hills Critical Zone Observatory and a biogeochemistry model, Biome‐BGC, to study the spatial distribution of C stocks and fluxes in a first‐order watershed. The model simulated the average C pools and fluxes in the watershed after constraining three model parameters with observations. The model was able to generate the observed spatial patterns of C pools in the watershed, with higher biomass and soil C in the valley and lower values on the ridgetop, though the model underestimated the ridgetop to valley differences. We examined the simulated effect of four environmental factors, soil moisture, soil temperature, nitrogen (N) availability and solar radiation, on the spatial distribution of C pools. Among these factors, soil water and N availability coupled together dominate the spatial distribution of aboveground biomass. Soil water was the most important factor controlling soil C. These results are highly sensitive to van Genuchten parameters, which describe the soil water retention curve. This study highlights the importance of the hydrologic system in describing within‐watershed structure in terrestrial C stocks.