AbstractClimate change will lead to prolonged droughts in various regions of the world, which may significantly affect agricultural production. This is particularly problematic for soils with low water retention capacity, which cannot store sufficient water for crops. In this paper, we investigate how a change in the water‐holding capacity of the soil material, as could be achieved by increasing the soil organic carbon (SOC) amount, affects the components of the soil water balance (evaporation, transpiration, and groundwater recharge). Specifically, we state the hypothesis that an increased water‐holding capacity in a shallow soil layer, as it is achieved through SOC enrichment at the soil surface, will result in more water being stored near the soil surface and lost to unproductive evaporation, thereby reducing the amount of water available to plants and groundwater recharge. The hypothesis was tested by numerical simulations, employing the Hydrus‐1D program package to model the water balance in a soil–plant–atmosphere system for an arable crop in hydrologically contrasting years. The study considered soils with varying textures and different depths of a soil layer with increased SOC content. The soil hydraulic properties (SHP) of the soil material, including the effect of SOC on the SHP, were determined using a recently developed pedotransfer model based on data from over 500 samples. We showed that both the improved water retention by SOC and its vertical distribution affect the soil water balance in a complex manner. In sandy soils, increasing the water‐holding capacity in shallow layers up to 0.1 m led to enhanced evaporation and thus a decrease in water availability for crops. However, deeper incorporated SOC could ameliorate these negative effects. Our findings suggest that not only the amount but also the vertical SOC distribution should be considered if enrichment of SOC shall be applied to mitigate the effect of droughts.