The "Nature-based Solutions" strategy for combatting global land degradation and climate change through forestation has drawn increasing concerns regarding its potential tradeoffs with water resources, especially in dry regions. China is "greening up" due to decades of large-scale tree planting and ecological restoration campaigns. However, national-level assessments of the individual and combined effects of forest cover and climate changes on water yield at a fine scale are still lacking. Here, we show several lines of evidence indicating that the unprecedented forestation has exacerbated water availability decline during 1980-2020 amid climate change across China. Meta-analysis identifies forestation as the dominant driver of the observed large declines in river flows for about half of the 112 reviewed watersheds. Scenario simulations using the Budyko framework and a monthly ecohydrological model, WaSSI-CN, all suggest that forestation substantially reduced water yield nation-wide, especially in the humid southern China and during the growing season. Forestation exacerbated the water yield decline caused by climate change of reduction in precipitation and rising air temperature through enhanced evapotranspiration in over 80% of the 168 large basins modeled. Effects of forestation could exert more impacts on water yield than climate change over 17 large basins. Forest management practices such as stand thinning, native tree species planting, and prescribed burning are encouraged to increase forest resilience and improve water supply functions.