The hydrological description of the Simple Biosphere Model 2 (SiB2) is improved in three respects. First, the SiB2 three-layer soil model is replaced with a multi-layer soil column coupled to a lumped unconfined aquifer model. Next, lateral water flows are described in the updated soil model. Finally, the soil hydraulic function in SiB2 is replaced with van Genuchten parameterization, and exponential vertical soil heterogeneity is described. In using observed streamflow to evaluate the hydrologically improved SiB2 (HydroSiB2), a new hydrological model (HydroSiB2-DHM) was developed by embedding HydroSiB2 into the spatial framework of a distributed hydrological model. Three-year fine temporal scale meteorological data from a small river basin were used to drive both HydroSiB2-DHM and SiB2-DHM (the same as HydroSiB2-DHM but with the original SiB2). Sub-grid topography was considered in both model runs, and analyses were based on basin-averaged values to maintain consistency with the regional evaluation using streamflow. The results show that HydroSiB2-DHM performs well in both fine and coarse time-scale runoff simulations; while SiB2-DHM captures inter-annual and seasonal runoff changes, but gives poor results in simulations at finer temporal-scales (daily and hourly). Owing to the treatment of lateral flows and using a multi-layer soil model coupled with a lumped unconfined aquifer in HydroSiB2, the soil moisture budget is qualitatively improved. In recession periods, the basin-averaged bare soil evaporation reduced by about 0.1 mm/d, resulting in a decrease in the latent heat flux and an increase in sensible heat flux of about 3.9 and 3.2 W/m2, respectively.