We assess the controls of the terrestrial water budget over the Eurasian pan‐Arctic drainage region from 2003 to 2009 by combining observations from the Gravity Recovery and Climate Experiment (GRACE) with reanalysis estimates of net precipitation and observations of river discharge from gauges. Of particular interest are the expansive permafrost regions. Thawing permafrost has been implicated to contribute to the observed discharge increases through the melting of excess ground ice. We show that terrestrial water storage (TWS) over large areas of the Eurasian pan‐Arctic region has increased during 2003–2009. However, significant interannual TWS variability is present and most TWS increases occur over nonpermafrost regions in the Ob and Yenisei basins. Over the central Lena basin, which is mostly underlain by permafrost, TWS steadily increased until 2007 but has slightly declined since. By combining GRACE observations of TWS anomalies with discharge and net precipitation, we show that the terrestrial water budget is at least qualitatively closed over the Eurasian Arctic basins. The observed TWS and discharge increases over the study time period were driven by increased atmospheric moisture fluxes. Therefore, we conclude that melting of excess ground ice in permafrost regions did not act as a source to observed changes in discharge. Nonetheless, the signature of significant TWS increases points to ongoing thickening of the active layer in particular over the discontinuous permafrost regions in the central Lena basin.