A practical approach for evaluating the capacity of watermarks is presented. In real applications of watermarks, reliability is one of the most important metrics. The problem focused on in this paper is maximizing the number of embedded bits when there are some constraints on detection reliability. Error rates are formulated under some assumptions about the watermarking scheme, and the capacity can be determined by setting the bounds on each error rate. Experiments are performed to verify the theoretical predictions using a prototype watermarking system which conforms to the assumptions, and the resulting capacity agrees with the theory. Further, the theoretical effects of employing error-correcting codes are considered. It is shown that this approach yields the practical capacity of watermarks, as compared with channel capacity in communication theory.