To achieve water resource sustainability in the water-limited southwestern US, it is critical to understand the potential effects of proposed forest thinning on the hydrology of semi-arid basins, where disturbances to headwater catchments can cause significant changes in the local water balance components and basinwise streamflows. In Arizona, the Four Forest Restoration Initiative (4FRI) is being developed with the goal of restoring 2.4 million acres of ponderosa pine along the Mogollon Rim. Using the physically based, spatially distributed triangulated irregular network (TIN)-based Real-time Integrated Basin Simulator (tRIBS) model, we examine the potential impacts of the 4FRI on the hydrology of Tonto Creek, a basin in the Verde–Tonto–Salt (VTS) system, which provides much of the water supply for the Phoenix metropolitan area. Long-term (20-year) simulations indicate that forest removal can trigger significant shifts in the spatiotemporal patterns of various hydrological components, causing increases in net radiation, surface temperature, wind speed, soil evaporation, groundwater recharge and runoff, at the expense of reductions in interception and shading, transpiration, vadose zone moisture and snow water equivalent, with south-facing slopes being more susceptible to enhanced atmospheric losses. The net effect will likely be increases in mean and maximum streamflow, particularly during El Niño events and the winter months, and chiefly for those scenarios in which soil hydraulic conductivity has been significantly reduced due to thinning operations. In this particular climate, forest thinning can lead to net loss of surface water storage by vegetation and snowpack, increasing the vulnerability of ecosystems and populations to larger and more frequent hydrologic extreme conditions on these semi-arid systems.