Watershed restoration is increasingly recognized as a critical strategy for enhancing hydrological processes, ecosystem services, and environmental sustainability in semi-arid regions. This study investigates the impacts of restoration interventions on runoff dynamics, actual evapotranspiration (AET), and the economic valuation of ecosystem services in a restored watershed compared to a control watershed in a semi-arid region of Iran over a 20-year period (2004-2024). Using the HEC-HMS model, we simulated daily hydrographs, revealing that the restored watershed experienced a 50% reduction in annual runoff compared to the control watershed, alongside improved water retention and more stable hydrological responses (for example, reduced flood peaks and sustained baseflow). Seasonal hydrographs show peak rainfall in late winter to early spring, with restoration significantly reducing peak flows. AET analysis, derived from the MOD16A2 product, demonstrated sustained evapotranspiration patterns, driven by enhanced vegetation cover and soil moisture retention, as evidenced by 8-day time series data. The economic valuation of ecosystem services, based on 2024 prices provided by the Iranian Department of Environment, highlighted a substantial benefit in the restored watershed, with a total value of 3,773 USD/ha/year, surpassing the control watershed's 2,730 USD/ha/year by 1,043 USD/ha/year. Regulating services, such as water regulation, erosion control, and carbon sequestration, exhibited the most significant gains, complemented by improvements in provisioning, supporting, and cultural services. From a cost-benefit perspective, the net annual gain yields a payback period of approximately 5.1 years, indicating that the investment is recovered in a relatively short timeframe. Moreover, the calculated benefit-cost ratio (BCR) of 1.75 over a 20-year horizon confirms that for every dollar invested, 1.75 USD is returned in economic value. These findings underscore the efficacy of integrating engineering (for example, check dams), biological (for example, hill drops and seeding) and management (for example, grazing exclusion) restoration measures to enhance watershed resilience, mitigate flood risks, and deliver long-term ecological and economic benefits. However, challenges such as scalability and maintenance costs require further exploration.