A systematic method using an optimal estimation algorithm is presented for simultaneous estimation of diffuse pollution distributed along a stream reach and model parameters for a stream water quality model. It was applied with the QVAL2E model to the South Han River for optimal estimation of kinetic constants and diffuse loads along the river. Initial calibration results for kinetic constants selected from a sensitivity analysis reveal that diffuse source inputs for nitrogen and phosphorus are essential to satisfy the system mass balance. Diffuse loads for total nitrogen and total phosphorus were estimated solving the expanded inverse problem. Comparison of kinetic constants estimated simultaneously with diffuse sources to those estimated without diffuse loads, suggests that diffuse sources must be included in the optimization not only for its own estimation but also for adequate estimation of the model parameters. Application of optimization method to river water quality modeling is discussed in terms of the sensitivity coefficient matrix structure.