In cold regions, hydrologic systems possess seasonal and perennial ice-free zones (taliks) within areas of permafrost that control and are enhanced by groundwater flow. Simulation of talik development that follows lake formation in watersheds modeled after those in the Yukon Flats of interior Alaska (USA) provides insight on the coupled interaction between groundwater flow and ice distribution. The SUTRA groundwater simulator with freeze–thaw physics is used to examine the effect of climate, lake size, and lake–groundwater relations on talik formation. Considering a range of these factors, simulated times for a through-going sub-lake talik to form through 90 m of permafrost range from ∼200 to > 1,000  years (vertical thaw rates < 0.1–0.5  m yr⁻¹). Seasonal temperature cycles along lake margins impact supra-permafrost flow and late-stage cryologic processes. Warmer climate accelerates complete permafrost thaw and enhances seasonal flow within the supra-permafrost layer. Prior to open talik formation, sub-lake permafrost thaw is dominated by heat conduction. When hydraulic conditions induce upward or downward flow between the lake and sub-permafrost aquifer, thaw rates are greatly increased. The complexity of ground-ice and water-flow interplay, together with anticipated warming in the arctic, underscores the utility of coupled groundwater-energy transport models in evaluating hydrologic systems impacted by permafrost.