The Mediterranean Basin is severely impacted by anthropogenic changes affecting both natural ecosystems and human livelihoods. The region is highly vulnerable to natural hazards, with floods being considered the most important, due both to their frequency and impacts. Koiliaris watershed (northwest of Crete Island, Greece) represents a relevant case study as past land-use changes via deforestation and intense cultivation practices induce soil organic matter losses, making soils susceptible to water erosion and desertification. The restoration of native riparian forests has been identified as the most effective nature-based solution (NBS) for the area. Through modeling, our study assessed the effectiveness of this NBS in addressing flood risk and erosion while providing additional ecosystem services (carbon sequestration and biodiversity conservation). A cost–benefit analysis has been then implemented to also investigate the sustainability of the investment from an economic point of view. Our results show the NBS would be successful in ensuring a better flow of targeted ecosystem services compared to the business-as-usual conditions. The associated investment would result in economic sustainability and associated costs would be paid back in five years. Though site-specific, our study provides lessons learned for dealing with future land-restoration challenges in the Mediterranean to cope with climate change-related challenges.