Thermal distillation presents a promising solution to achieve the beneficial reuse of hypersaline-produced water (PW). This study evaluated the performance of a novel pilot-scale low-temperature thermal distillation system treating PW from the Permian Basin and studied the suitability of the effluent for surface discharge applications. The robustness of the system was evaluated by monitoring over 16 key parameters during continuous operation. Water quality was assessed using a targeted chemical scheme and whole effluent toxicity (WET) tests with model organisms from four trophic levels. The system showed a robust performance during the operation and effectively reduced salinity (>99%), major ions (95–99%), heavy metals (60–100%), ammonia (93%), and organics (43–60%) in feed PW. The WET assessment showed adverse effects on the organisms across multiple trophic levels, involving algae, invertebrates, fish, and bacteria. Comprehensive chemical characterization identified 14 constituents listed as priority pollutants in the distillate, including volatile and semi-volatile organic compounds, metals, and nitrogenous compounds. This study identified 5 constituents at potentially toxic levels for the organisms tested, providing insight into additional polishing steps that may be coupled with distillation to achieve non-toxic effluents suitable for discharge. This study serves as a critical resource for future risk-based research, informs risk assessment efforts, and guides the development of treatment strategies for the beneficial reuse of hypersaline PW.