Interbasin water transfers have been undertaken in those regions that water demand has gone beyond regional water availability. Some reservoirs in a recipient region have both natural inflow (NI) and the controlled inflow (CI) through water transfer. This study establishes a theoretical framework to analyze reservoir operation with combined NI and CI, via an optimization model to maximize the net benefit of reservoir operation, considering both deterministic and stochastic NI. Operation rules for both water transfer and reservoir release are derived from the framework. It is illustrated that the amount of CI depends on water availability to the recipient reservoir, the relationship between marginal benefit and marginal cost, the water transfer capacity, and the uncertainty level of NI. As forecast uncertainty increases, more water is transferred, and more water is left in the reservoir as carryover storage when the initial water availability (WA0) is small; however, with a certain high level of WA0 and forecast uncertainty, water transfer will be controlled to reduce the risk of water abandonment. Notably, the critical values of the forecast uncertainty that control water transfer are identified under the various WA0. The analysis is illustrated via a case study with a real‐world reservoir in northeastern China. In summary, this study derives hedging rules for water supply reservoir with combined NI and CI to mitigate the risk of both water shortage and water abandonment and provides guidelines to use NI forecasts for water transfer and reservoir release decisions.