Land degradation caused by soil erosion has become the most serious problem in the Ethiopian highlands. Quantifying the spatial variations of soil loss with a strong evidence helps to prioritize the watersheds for the implementation of different management practices. The study was carried out in the Toba Watershed of the Upper Blue Nile Basin in Ethiopia. Its objective was to evaluate the rate of soil erosion and identify the hotspots with high risk of soil erosion for watershed management planning. Then, Soil and Water Assessment Tool (SWAT) was used to evaluate the effectiveness of best management practices (BMP) in reducing soil loss. The performance of SWAT in simulating streamflow and sediment yield was evaluated through sensitivity analysis, uncertainty, calibration and validation process. Statistically, the calibrated and validated sediment yields (SY) against the observed sediment data were reasonably accurate (R2 = 0.67, 0.65, NSE = 0.66, 0.64, PBIAS=-8.4%, 9.8% respectively). The annual SY in Toba watershed varies from 0.09 t ha− 1 yr− 1 to 44.8 t ha− 1 yr− 1 with an average SY of 22.7 t ha− 1 yr− 1. To prioritize the SY of the watershed, the annual severity of SY was divided into six classes: very low, low, moderate, high, very high and severe. The study also showed that SY in most watersheds (about 53.8%) were higher than the average. Cultivation on steep slopes leads to the highest SY, while forested areas have lower SY contribution. five management scenarios were evaluated using the Calibrated model. Seventeen sub-basins with SY exceeding the tolerable erosion of Ethiopia (t ha− 1 yr− 1) were considered for the analysis of the BMP scenario. The results show that reforestation combined with vegetative strips was the most effective for soil erosion control (87.8% reduction) followed by the combination of soil/stone bund and vegetative strips (83.7% reduction). Overall, the results of this study provided important data for watershed management and are very useful to ensure the sustainable management of land and natural resources at watershed level.