Breakdown and colonisation of buried and surface‐incubated wood was examined in a beech forest stream in South Island, New Zealand. Comparisons were also made of microbial activity on wood, leaves, and stones. Weight loss of sticks was initially slow, but after 11.5 months 39% of their initial dry weight had been lost. Microbial colonists were mainly fungal hyphae, fine actinomycete‐like filaments and unicellular bacteria. Chironomid larvae, oligochaetes, and harpacticoid copepods were the most abundant animal colonisers. Incorporation of14C‐glucose by wood‐surface biofilms increased in the first 3 months and was greater on surface‐incubated than buried sticks. Endocellulase activity varied over time, and very high values after 2 months were associated with dense patches of filamentous microorganisms. Similar microbial assemblages developed on surface‐incubated sticks, leaves and twigs, but fungi were not found on stones where diatoms predominated and endocellulase activity was negligible. Results of preliminary experiments with diffusion substrata suggested that the heterotrophic biofilm microflora was nutrient‐limited. Our findings indicate that wood surfaces can be important sites of organic matter uptake and transfer in forest streams.