Controlled drainage (CD), or drainage water management, has been accepted and promoted through government cost-sharing programs as a means of reducing nitrogen (N) loading to streams and estuaries.  The practice has been widely used in North Carolina since the 1980s and is currently being promoted   in the mid west as a means of reducing N loading in the Mississippi river and the Gulf of Mexico.  The acceptance of this practice is largely based on research conducted by Wendell Gilliam and colleagues in the 1970s and 1980s at North Carolina State University.  Field experiments on a wide range of soils showed that annual N loads in drainage waters could be reduced by 40 to 50% by the use of CD during both the growing and non-growing seasons.  Research has consistently shown that the measured reduction in N loads associated with CD is primarily caused by a reduction in drainage volumes, rather than a reduction in N concentrations in drainage water.  This leads to the question, how does controlled drainage affect the water and N balances in drained lands?  Gilliam’s field measurements supported the hypothesis that controlled drainage results in increased deep and/or lateral seepage through reduced zones where N is denitrified before entering ground or surface waters.  While field measurements indicate that this hypothesis holds in many drained lands, it does not hold in others.  This paper reports results of a simulation study that examines the effect of controlled drainage on water and N balances in artificially drained lands.  The model DRAINMOD with the recently developed DRAINMOD-NII is used to simulate effects of controlled drainage strategies on the water balance, including seepage to deep and lateral sinks, and on N losses to surface and ground waters.  Results indicate that use of controlled drainage increases evapotranspiration, surface runoff and seepage, and reduces subsurface drainage.  Its effect on N losses from the system vary with the local site conditions and can be directly related to the major N transformations such as net N mineralization and denitrification, which are in turn dependent on the availability of soil organic carbon and its distribution in the profile.