Global forest plantations are expanding, causing land-use changes and impacting the water cycle. This study assesses whether eucalyptus plantations reduce groundwater levels compared to grasslands in paired subtropical watersheds. The hydrological dynamics of surface and subsurface water were compared in three small watersheds in southern Brazil, mainly occupied by Eucalyptus saligna (Es-W, 79.9 ha), Eucalyptus benthamii (Eb-W, 82.1 ha), and degraded anthropized natural grassland (G-W, 109.4 ha). Rainfall, flow, and piezometric levels were monitored. Runoff, evapotranspiration, and water balance in the soil profile were estimated, and the subsurface environment was characterized using electrical resistivity tomography. During higher accumulated rainfall, water surplus increased for all watersheds. In the wet period (accumulated rainfall of 1098.0 mm), evapotranspiration was higher for eucalyptus (624.3 mm for Eb-W and 512.5 mm for Es-W) than for the grassland watershed (299.5 mm), resulting in the highest runoff in G-W (649.6 mm). During the dry period (accumulated rainfall of 478.5 mm), water deficit and withdrawal were mainly observed in forested watersheds, decreasing groundwater. Combining water balance and electrical resistivity tomography estimations results in a better understanding of the hydrological dynamics in paired watersheds with different land uses. This information is useful for developing best-practice management strategies for sustainable water resource use and forest production.