Worldwide, coastal and marine ecosystems are affected by water pollution originating from coastal river catchments, even though ecosystems such as the Great Barrier Reef are vital from an environmental as well as an economic perspective. Improved management of coastal catchment resources is needed to remediate this serious and growing problem through, e.g. agricultural land use and management practice change. This may, however, be very costly and, consequently, there is a need to explore how water quality improvement can be achieved at least cost. In the present paper, we develop an environmental–economic modelling approach that integrates an agricultural production system simulation model and a catchment water quality model into a spatial environmental–economic land-use model to explore patterns of land use and management practice that most cost-effectively achieve specified water quality targets and, in turn, estimate corresponding water pollution abatement cost functions. In a case study of sediment and nutrient water pollution by the sugarcane and grazing industries in the Tully–Murray catchment (Queensland, Australia), it is shown that considerable improvements in water quality can be obtained at no additional cost, or even benefit, to the agricultural industry, whereas larger water quality improvements come at a significant cost to the agricultural industry.