Water availability in the subhumid region is highly vulnerable to frequent droughts. Water scarcity in this region has become a limiting factor for ecosystem health, human livelihood, and regional economic development. A notable pattern of land cover change in the subhumid region of the United States is the increasing forest area due to afforestation/reforestation and woody plant encroachment (WPE). Given the distinct hydrological processes and runoff generation between forests and grasslands, it is important to evaluate the impacts of forest expansion on water resources, especially under future climate conditions. In this study, we focused on a typical subhumid watershed in the United States – the Little River Watershed (LRW). Utilizing SWAT + simulations, we projected streamflow dynamics at the end of the 21st century in two climate scenarios (RCP45 and RCP85) and eleven forest expansion scenarios. In comparison to the period of 2000–2019, future climate change during 2080–2099 will increase streamflow in the Little River by 5.1% in the RCP45 but reduce streamflow significantly by 30.1% in the RCP85. Additionally, our simulations revealed a linear decline in streamflow with increasing forest coverage. If all grasslands in LRW were converted into forests, it would lead to an additional 41% reduction in streamflow. Of significant concern is Lake Thunderbird, the primary reservoir supplying drinking water to the Oklahoma City metropolitan area. Our simulation showed that if all grasslands were replaced by forests, Lake Thunderbird during 2080–2099 would experience an average of 8.6 years in the RCP45 and 9.4 years in the RCP85 with water inflow amount lower than that during the extreme drought event in 2011/2012. These findings hold crucial implications for the formulation of policies related to afforestation/reforestation and WPE management in subhumid regions, which is essential to ensuring the sustainability of water resources.