AbstractThe presence of permafrost influences the flow paths of water through Arctic landscapes and thereby has the potential to impact stream discharge and thermal regimes. Observations from 11 headwater streams in Alaska showed that July water temperatures were higher in catchments with more near‐surface permafrost. We apply a fully coupled cryohydrology model to investigate if the impact of permafrost on flow path depth could cause the same pattern in temperatures of groundwater discharging from hillslopes to streams. The model simulates surface energy and water balances, snow, and subsurface water and energy balances for two‐dimensional hillslope model cases with varying permafrost extent. We find that hillslopes with continuous permafrost have more shallow flow paths and twice as high rates of evapotranspiration, compared to hillslopes with no permafrost. For our simulated cases, 6.7% of the horizontal water flux moves through the top organic soil layers when there is continuous permafrost, while only 0.5% moves through organic layers without permafrost. The deeper flow paths in permafrost‐free simulations buffer seasonal temperature extremes, so that summer groundwater discharge temperatures are highest with continuous permafrost. Our results suggest that permafrost thawing alters groundwater flow paths and can lead to decreases in summer stream temperatures and reductions in evapotranspiration in headwater catchments. These changes are of potential importance for stream biotic components of ecosystems, however, the full impact remains unknown.