Pacific herring (Clupea pallasii) is an ecologically and commercially valuable forage fish in the North Pacific Ocean. However, knowledge gaps exist around the abiotic and biotic drivers behind its variable population dynamics—as well as on the ability of the species to show spatially structured trends that stabilize population portfolios in the face of environmental change. Here we examined how historical hydroclimatic variability in the San Francisco Estuary (California) has driven age‐0 Pacific herring population dynamics over 35 years. First, we used wavelet analyses to examine spatiotemporal variation and synchrony in the environment, focusing on two key variables: salinity and temperature. Next, we fitted multivariate autoregressive state‐space models to environmental and abundance time series to test for spatial structure and to parse out abiotic (salinity and temperature) from biotic influences (spawning and density dependence). Finally, we examined the stabilizing effects of spatially asynchronous population fluctuations (i.e., portfolio effects) across the estuary. Our results showed that temperature, but not salinity, fluctuated synchronously across regions on seasonal and decadal timescales. The top‐ranked model showed strong evidence of regional population structure and regional variation in population responses to the environment. As expected, age‐0 herring were generally associated with cooler, saltier conditions in spring. Density dependence was strong in all regions, suggesting that local factors influencing rearing conditions limited juvenile population growth across the estuary. Additionally, age‐0 abundance fluctuations were on average 15% more stable across the estuary than in individual regions, demonstrating that portfolio effects arising from population asynchrony have helped to stabilize recruitment across the estuary over the past four decades. We contend that ecosystem‐based fishery management strategies to restore eelgrass and tidal marsh rearing habitats could increase the carrying capacity of the estuary, further stabilizing the herring population and reducing the risk of fishery closures.