Forest growth function and water cycle are affected by climatic conditions, making climate-sensitive models, e.g., process-based, crucial to the simulation of dynamics of forest and water interactions. A rewarded and widely applied model for forest growth analysis and management, 3PG, is a physiological process-based forest stand model that predicts growth. However, the model runs on a monthly basis and uses a simple soil-water module. Therefore, we downscale the temporal resolution to operate daily, improve the growth modifiers and add a responsive hydrological sub-model to represents the key features of a snow routine, a detailed soil-water model and a separated soil-evaporation calculation. Thereby, we aim to more precisely analyze the effects of thinning events on forest productivity and water services. The novel calibrated 3PG-Hydro model was validated in Norway spruce sites in Southern Germany and confirmed improvements in building forest processes (evapotranspiration) and predicting forest growth (biomass, diameter, volume), as well as water processes and services (water recharge). The model is more sensitive to forest management measures and variability in soil water by (1) individualization of each site’s soil, (2) simulation of percolation and runoff processes, (3) separation of transpiration and evapotranspiration to predict good evapotranspiration even if high thinning is applied, (4) calculation in daily time steps to better simulate variation and especially drought and (5) an improved soil-water modifier. The new 3PG-Hydro model can, in general, better simulate forest growth (stand volume, average diameter), as well as details of soil and water processes after thinning events. The novel developments add complexity to the model, but the additions are crucial and relevant, and the model remains an easy-to-handle forest simulation tool.