Water security is the backbone of regional development. However, it is generally compromised by the increasing competition for water resources between natural and social systems, especially in areas with limited water resources. Sustainable water planning requires a comprehensive analysis of supply and demand patterns, which is difficult owing to scale mismatches in data and methodologies. This study investigated the dynamics and interrelationships of water supply and demand in a semi-arid watershed of the Loess Plateau, China, by developing a system dynamics model that simulates water security during 1980–2020 and future changes under different climate, socioeconomic development, and inter-basin water diversion scenarios during 2021–2050. The results showed that (1) by the end of 2020, the regional water security level gradually approached the water scarcity threshold indicated by the water deficit index surpassing 0; (2) under unfavorable climate and progressive socioeconomic growth conditions, up to 16 out of 30 years of simulation demonstrated water insecurity in the form of a net water quantity deficit; and (3) the water diversion project can offset such deficits in the short term, but potentially aggravates water insecurity risk by eliciting a more rapid socioeconomic growth pattern. The results indicate that curbing demand and improving water-saving technology are instructive in water resource management. For the Yanhe Watershed, the quantity and pattern of water diversion should be improved in the future to guarantee water resource security on a full temporal scale. We suggest a moderate socioeconomic growth rate to be more appropriate for this region and that efforts to solidify water use redlines and advancement in water-saving technologies are essential in the future. This study provides a scientific basis for the long-term evaluation of regional water security on a full timescale with tightly coupled hydrological components and a modeling framework for decision-makers to manage water resources sustainably.