Precipitation is the primary driver of hydrological models, and its spatial and temporal variability have a great impact on water partitioning. However, in data‐sparse regions, uncertainty in precipitation estimates is high and the sensitivity of water partitioning to this uncertainty is unknown. This is a particular challenge in drylands (semi‐arid and arid regions) where the water balance is highly sensitive to rainfall, yet there is commonly a lack of in situ rain gauge data. To understand the impact of precipitation uncertainty on the water balance in drylands, here we have performed simulations with a process‐based hydrological model developed to characterize the water balance in arid and semi‐arid regions (DRYP: DRYland water Partitioning model). We performed a series of numerical analyses in the Upper Ewaso Ng'iro basin, Kenya driven by three gridded precipitation datasets with different spatio‐temporal resolutions (IMERG, MSWEP, and ERA5), evaluating simulations against streamflow observations and remotely sensed data products of soil moisture, actual evapotranspiration, and total water storage. We found that despite the great differences in the spatial distribution of rainfall across a climatic gradient within the basin, DRYP shows good performance for representing streamflow (KGE >0.6), soil moisture, actual evapotranspiration, and total water storage (r >0.5). However, the choice of precipitation datasets greatly influences surface (infiltration, runoff, and transmission losses) and subsurface fluxes (groundwater recharge and discharge) across different climatic zones of the Ewaso Ng'iro basin. Within humid areas, evapotranspiration does not show sensitivity to the choice of precipitation dataset, however, in dry lowland areas it becomes more sensitive to precipitation rates as water‐limited conditions develop. The analysis shows that the highest rates of precipitation produce high rates of diffuse recharge in Ewaso uplands and also propagate into runoff, transmission losses and, ultimately focused recharge, with the latter acting as the main mechanism of groundwater recharge in low dry areas. The results from this modelling exercise suggest that care must be taken in selecting forcing precipitation data to drive hydrological modelling efforts, especially in basins that span a climatic gradient. These results also suggest that more effort is required to reduce uncertainty between different precipitation datasets, which will in turn result in more consistent quantification of the water balance.