Widespread hydrologic alterations have simplified in-stream habitats in rivers globally, driving population declines and extirpations of many native fishes. Here, we examine how rapid geomorphic change in a historically degraded desert river has influenced habitat diversification and ecosystem persistence. In 2010, a large reach of the degraded and simplified lower San Rafael River (SRR), Utah, was impacted by the formation of a valley plug and began to shift from a homogenous, single-thread channel to a complex, multi-threaded riverscape. We combined field measurements and drone-collected imagery to document changes in fish habitat due to the valley plug. Our results demonstrate that in 2021, the affected reach was more diverse than any other stream reach along the SRR, containing 641% more diverse habitat (e.g., pools, riffles, and backwaters) than what was measured in 2015. The plug reach also retained water for periods beyond what was expected during seasonal drying, with the total extent of inundation within the riverscape increasing by over 2800%. Since the formation of the valley plug, riparian habitat has increased by 230% and channel networks have expanded to more than 50 distinct channels throughout the zone of influence. Our results provide evidence of successful self-restoration in a formerly highly degraded reach of desert river, and encourage new methods of desert river restoration. We aim to inform the use of large-scale, disruptive restoration actions like intentional channel occlusions, with the goal of mitigating the impacts of simplification and increasing habitat persistence in the face of exacerbated aridity in the desert Southwest.