Permafrost responses to a changing climate can affect hydrological and biogeochemical cycling, ecosystems and climate feedbacks. We have simulated a model permafrost system in the temperature range associated with discontinuous permafrost focusing on interactions between permafrost and hydrology using a non-isothermal, three-phase model of water migration coupled to heat transport in partially frozen porous media. We explore the subsurface hydraulic property controls on the formation and dynamics of permafrost, and how this impacts seasonal variability of subsurface runoff to surface waters. For all subsurface conditions considered, the main common hydrological signal of permafrost degradation in a warming trend is decreasing seasonal variability of water flow. This is due to deeper and longer flow pathways with increasing lag times from infiltration or thawing through subsurface flow to surface water discharge. These results show how physically based numerical modelling can be used to quantitatively and qualitatively improve the understanding of how permafrost thawing relates to, and may be detected in, hydrological data. This is advantageous since hydrological data is considerably easier to obtain, may be available in longer time series, and generally reflects larger-scale conditions than direct permafrost observations.