"line separating waters flowing into different rivers," 1803, from water, n.1 + shed in a topographical sense of "ridge of high ground between two valleys or lower ground, a divide," perhaps from shed, v. in its extended noun sense of "the part of the hair of the head" (14c.). Perhaps a loan-translation of German Wasser-scheide. Figurative sense is attested from 1878. Meaning "ground of a river system" is from 1878.