Resource retention is an important component of landscape function in semi-arid environments, with patches in the landscape serving as sink zones, capturing runoff, sediments and nutrients from inter-patches or source areas. The overall aim of this study was to compare the hydrological and erosional responses of patches and inter-patches using small-scale (1 m²) rainfall simulation in four vegetation states comprising woody encroachment (trees and shrubs > 1200 stems ha⁻¹), recent pasture (< 23 years of age), long-established pasture (50–100 years of age) and open woodland in relation to ground cover, in semi-arid south-eastern Australia. Hydrological and erosional responses differed consistently between patches and inter-patches within each vegetation state. Inter-patches (mean ground cover = 23.5% ± 2.7% SE) had the least desirable hydrological and erosional responses, and produced the highest amounts of runoff and sediment, followed in decreasing order by medium vegetated patches (mean ground cover = 54.8% ± 3.1% SE) and well vegetated patches (mean ground cover = 77.3% ± 3.1% SE). However, when hydrological and erosional responses from the same patch type and inter-patches were compared between vegetation states, two differences were found. Well vegetated patches in woody encroachment produced higher runoff than other well vegetated patches, and inter-patches in recent pasture had higher sediment concentration and production than inter-patches in other vegetation states. Total ground cover in the patch types was negatively correlated with runoff and sediment production, and with sediment production in inter-patches. Cryptogam cover in well vegetated patches was associated with higher runoff and sediment production, but cryptogam cover in inter-patches was associated with lower sediment concentration and production. Herbaceous cover and litter in medium vegetated patches were associated with lower runoff and sediment production. Our results indicate that patches and inter-patches are functional units from an eco-hydrological perspective within this semi-arid region and they influence soil hydrological and erosional characteristics irrespective of vegetation state.