Land use practices have caused stream channel incision and water table decline in many montane meadows of the Western United States. Incision changes the magnitude and timing of streamflow in water supply source watersheds, a concern to resource managers and downstream water users. The hydrology of montane meadows under natural and incised conditions was investigated using watershed simulation for a range of hydrologic conditions. The results illustrate the interdependence between: watershed and meadow hydrology; bedrock and meadow aquifers; and surface and groundwater flow through the meadow for the modeled scenarios. During the wet season, stream incision resulted in less overland flow and interflow and more meadow recharge causing a net decrease in streamflow and increase in groundwater storage relative to natural meadow conditions. During the dry season, incision resulted in less meadow evapotranspiration and more groundwater discharge to the stream causing a net increase in streamflow and a decrease in groundwater storage relative to natural meadow conditions. In general, for a given meadow setting, the magnitude of change in summer streamflow and long-term change in watershed groundwater storage due to incision will depend on the combined effect of: reduced evapotranspiration in the eroded meadow; induced groundwater recharge; replenishment of dry season groundwater storage depletion in meadow and bedrock aquifers by precipitation during wet years; and groundwater storage depletion that is not replenished by precipitation during wet years.