The satellite Gravity Recovery and Climate Experiment (GRACE) provides data describing monthly changes in the geoid, which are closely related to changes in vertically integrated terrestrial water storage. Unlike conventional point or gridded hydrologic measurements, such as those from rain gauges, stream gauges, rain radars, and radiometric satellite images, GRACE data are sets of Stokes coefficients in a truncated spherical harmonic expansion of the geoid. Swenson and Wahr [2002] describe techniques for constructing spatial averaging kernels, with which the average change in vertically integrated water storage within a given region can be extracted from a set of Stokes coefficients. This study extends that work by applying averaging kernels to a realistic synthetic GRACE gravity signal derived in part from a large-scale hydrologic model. By comparing the water storage estimates inferred from the synthetic GRACE data with the water storage estimates predicted by the same hydrologic model, we are able to assess the accuracy of the GRACE estimates and to compare the performance of different averaging kernels. We focus specifically on recovering monthly water storage variations within North American river basins. We conclude that GRACE will be capable of estimating monthly changes in water storage to accuracies of better than 1 cm of water thickness for regions having areas of 4.0 · 10⁵ km² or larger. Accuracies are better for larger regions. The water storage signal of the Mississippi river basin (area = 3.9 · 10⁶ km²), for example, can be obtained to better than 5 mm. For regional- to global-scale water balance analyses, this result indicates that GRACE will provide a useful, direct measure of seasonal water storage for river-basin water balance analyses; such data are without precedent in hydrologic analysis.