The Yongding River (Beijing, China) was dry most times of the year, and groundwater storage was severely depleted. To address this issue, a river rehabilitation project was initiated. A downstream environmental flow release (EFR) project from upstream reservoirs has been implemented since 2019. This study evaluated the impact of EFR by constructing transient groundwater-flow and numerical tracer transport models to simulate the hydrogeological responses to the water release events in 2019–2020. The study identified two factors that significantly influence the river leakage rate, which are operational factors (i.e., water release rate and duration) and physical factors (i.e., hydraulic properties of the riverbed, regional hydraulic gradients, and groundwater depth) that determine the maximum water availability for groundwater recharge and maximum infiltration capacity, respectively. Predictive modelling was performed to assess the long-term effects of the proposed EFR scheme from 2021 to 2050, which showed that groundwater levels along the river will increase by 10–20 m by 2050. Groundwater storage is expected to be largely recovered and groundwater/surface-water connectivity in the middle reach of the river will be restored. This restoration will not only maintain the environmental flow for the benefit of ecosystems but also enhance groundwater recharge, promoting sustainable groundwater development in the region. Overall, this study provides valuable insights into the effectiveness of the proposed EFR scheme in achieving sustainable groundwater development in the region.