The Tibetan Plateau (TP) is a region rich in extensive frozen ground and the source of many major Asian rivers. However, how soil freeze/thaw (F/T) dynamics influence runoff production at the catchment scale in the TP is poorly understood. This study employs a process-based permafrost hydrology model with a new soil parameterization to investigate soil F/T dynamics and their impact on runoff in a TP permafrost watershed, i.e., the source region of Yangtze River (SRYR). The revised model separates soil evaporation and plant transpiration, and accounts for the influence of soil gravel and organic carbon content, as well as variation in saturated hydraulic conductivity along the soil profile. Validation results demonstrate that the revised model accurately simulates daily soil temperature (mean RMSE of 1.3 °C), soil moisture (mean ubRMSE of 0.05 cm3 cm−3), and runoff discharge (NSE = 0.82). The results reveal different altitudinal patterns of warming trend between permafrost and seasonally frozen ground (SFG). Warming rates in SFG area increase monotonously with elevation, while a turning point is observed in permafrost region around 4800 m. With active layer deepening, deep-soil water content increases but primarily replenishes soil water storage rather than directly contributing to runoff recharge, while rootzone and the middle part of the active layer become drier. Soil F/T cycles in the permafrost region exert stronger influences on runoff process compared to SFG. Delayed soil thaw onset generally results in higher spring runoff coefficient, while delayed soil freeze onset is related to slower runoff recession. The freezing zero-curtain period is likely to impact the continuity of runoff recession processes by affecting the connectivity of groundwater flow channels. These findings uncover the regulatory mechanisms of soil F/T dynamics on runoff production and river discharge characteristics, providing a fundamental basis for predicting permafrost hydrology responses to future climate change in the TP.