Annual streamflows have decreased across mountain watersheds in the Pacific Northwest of the United States over the last ~70 years; however, in some watersheds, observed annual flows have increased. Physically based models are useful tools to reveal the combined effects of climate and vegetation on long-term water balances by explicitly simulating the internal watershed hydrological fluxes that affect discharge.We used the physically based Simultaneous Heat and Water (SHAW) model to simulate the inter-annual hydrological dynamics of a 4 km2 watershed in northern Idaho. The model simulates seasonal and annual water balance components including evaporation, transpiration, storage changes, deep drainage, and trends in streamflow. Independent measurements were used to parameterize the model, including forest transpiration, stomatal feedback to vapour pressure, forest properties (height, leaf area index, and biomass), soil properties, soil moisture, snow depth, and snow water equivalent. No calibrations were applied to fit the simulated streamflow to observations. The model reasonably simulated the annual runoff variations during the evaluation period from water year 2004 to 2009, which verified the ability of SHAW to simulate the water budget in this small watershed. The simulations indicated that inter-annual variations in streamflow were driven by variations in precipitation and soil water storage. One key parameterization issue was leaf area index, which strongly influenced interception across the catchment. This approach appears promising to help elucidate the mechanisms responsible for hydrological trends and variations resulting from climate and vegetation changes on small watersheds in the region.