Watershed urbanization decreases diversity and taxonomic richness of aquatic insect communities, and headwater streams are particularly susceptible to degradation from urbanization. Patterns of taxon loss between urban headwater communities and communities in adjacent downstream, higher-order reaches might indicate which processes are controlling taxon loss and the extent to which unique headwater taxa are lost after urbanization. We compared insect communities in urban and rural watersheds and investigated if community similarity between headwater streams and adjacent higher-order main-stem reaches was greater in urban than in rural watersheds. We sampled insect communities in 3 urban and 3 rural watersheds in Maryland's Piedmont region during 3 seasons. Mean taxonomic richness was 4.3× greater and the Shannon diversity index was 1.8× greater in rural than in urban headwater streams. Simpson's index was 1.9× greater in urban than in rural headwater streams. The Jaccard similarity index calculated between headwater and main-stem communities was 1.6× greater for urban sites than rural sites during autumn, and the proportion of headwater taxa shared with the main-stem community was 1.8× greater for urban than rural sites. Redundancy analysis also indicated significantly greater similarity between urban headwater and main-stem communities than between rural headwater and main-stem communities. As expected, urbanization decreased diversity, and the communities remaining in urban headwaters were mostly subsets of the communities in the main-stem streams. This result suggested that taxa unique to headwaters were at the greatest risk of local extirpation after watershed urbanization. A significant interactive effect of landuse type and the longitudinal position of a reach along the headwater on taxonomic richness and the Jaccard index suggested that patterns of taxon loss partially depended on the proximity of a headwater reach to the main-stem stream. Overall, the results suggested that water- and habitat-quality degradation were not the only effects of watershed urbanization that determined the composition of insect communities in urban headwaters.