Context Increasing water scarcity creates the major challenge of how to achieve environmental outcomes while meeting human water demands. In the Murray–Darling Basin, Australia, this challenge is being addressed by the Murray–Darling Basin Plan and the ‘Sustainable Diversion Limit Adjustment Mechanism’ (SDLAM), an offsetting program seeking to achieve environmental outcomes using less water. Aims We provide a critique of the legislated method for evaluation of the SDLAM and the suitability of the process for evaluating whether equivalent environmental outcomes have been achieved. Methods Four project case studies, project documentation, external reviews and relevant legislation were used to assess the implementation of the SDLAM and the evaluation method. Key results The SDLAM evaluation method is not scientifically rigorous. It excludes residual risks, Basin-wide impacts and climate change. The evaluation timeline is biased towards measuring infrastructure outputs rather than environmental outcomes and impacts. Conclusions Flaws in the SDLAM evaluation processes mean that environmental benefits are likely to be overstated, risking further reductions in allocations of water for the environment, contrary to the objectives of the Basin Plan. Implications Improved evaluation, including empirical data on outputs, outcomes and impacts, is needed to ensure that conservation objectives can be met for wetlands subject to SDLAM projects.