Although groundwater and surface water are often treated as individual water compartments in hydrological cycle studies, they essentially originate from one source. Such a split approach restricts the optimal usages of these water resources in several water management applications. The present study aims to shed light on the complex interaction of surface–groundwater interactions in terms of groundwater recharge from drainage network towards the adjacent aquafer and conversely, groundwater discharge from the aquifer towards the drainage network in the Gharehsoo River Basin (GRB), with the enclosed Ardabil aquifer, located in northwest Iran. To that end, the Soil and Water Assessment Tool (SWAT), as the surface hydrological model was fully coupled with the latest version of the Modular Three-Dimensional Finite-Difference Groundwater Flow (MODFLOW-NWT) (Newton–Raphson Technique to improve the solutions of unconfined groundwater-flow problems). The total study period, i.e. 1978–2012 was split into two intervals for calibration (1988–2012) and validation (1978–1987). To facilitate and expedite the calibration of the coupled model, first we calibrated SWAT and MODFLOW-NWT independently against the observed streamflow and groundwater head time series, respectively. Afterwards, we recalibrated the coupled model SWAT-MODFLOW. To link these two models, the surface and sub-surface water flow components are exchanged between the Disaggregated Hydrological Response Units (DHRUs) of SWAT with the MODFLOW-NWT’ grid cells. In addition, three more flow components are sequentially exchanged: the deep percolation from SWAT to MODFLOW-NWT, baseflow/groundwater discharge from MODFLOW-NWT to SWAT, and the river heads from SWAT to MODFLOW-NWT. The results of the application show that the coupled model satisfactorily, quantified by R2 ≥ 0.5, simulates streamflow and particularly, groundwater heads. In fact, both observations and simulations indicate that, owing to an ongoing overexploitation of the aquifer, heads have been decreased steadily over the studied period which has led to a parallel decline of the groundwater storage. Moreover, the analysis of the stream–aquifer exchange flows indicates that groundwater discharge towards the stream-network (effluent conditions) is orders of magnitude higher than the opposite process (influent conditions). In addition, findings reveal that many of the tributaries across the GRB have shifted from a perennial regime to ephemeral/intermittent system over the past decades. The provided and well-tested coupled model would be a viable asset to assess a wide range of plausible scenarios to identify most effective and practical water resource management schemes to recover the severely depleted surface water and groundwater resources of the GRB.