Canola (Brassica napus) yields have been declining in the medium–high rainfall (550–650 mm) areas of southern NSW during the 1990s. This decline is not related to seasonal conditions and is not evident in wheat. Leading growers and consultants suspect that increasing levels of the diseases blackleg, caused by Leptosphaeria maculans, and sclerotinia stem rot, caused by Sclerotinia sclerotiorum, may be responsible. We investigated the effect of these diseases on otherwise well-managed canola crops at 2 sites in southern NSW from 2001 to 2003. Blackleg was present at both sites in all 3 years, with 8–10% of plants of variety Rainbow lodged in the untreated plots at Galong in all years, and 1–10% at Wallendbeen. Sclerotinia stem rot was predominately confined to 2001 when 7–42% of plants were infected in the untreated plots at the sites. Individually, or in combination, the diseases caused significant yield losses at both sites in every year of the study, ranging from 0.39 t/ha to 1.54 t/ha. These findings suggest that for each 1% reduction in the incidence of blackleg lodging, yield was increased by 5%, whereas each 1% reduction in plants infected with sclerotinia stem rot increased yield by 1.3%. The ability of the crops to yield to their simulated water and N-limited potential when these diseases were either absent or controlled, indicates that disease may be the key yield-limiting factor in the area. Cost-effective control strategies for both diseases are critical if canola is to remain an important and profitable break crop in the farming system in the high-rainfall zone of southern NSW.