Given their ability to provide food, raw material and alleviate poverty, oil palm (OP) plantations are driving significant losses of biodiversity-rich tropical forests, fuelling a heated debate on ecosystem degradation and conservation. However, while OP-induced carbon emissions and biodiversity losses have received significant attention, OP water requirements have been marginalized and little is known on the ecohydrological changes (water and surface energy fluxes) occurring from forest clearing to plantation maturity. Numerical simulations supported by field observations from seven sites in Southeast Asia (five OP plantations and two tropical forests) are used here to illustrate the temporal evolution of OP actual evapotranspiration (ET), infiltration/runoff, gross primary productivity (GPP) and surface temperature as well as their changes relative to tropical forests. Model results from large-scale commercial plantations show that young OP plantations decrease ecosystem ET, causing hotter and drier climatic conditions, but mature plantations (age > 8−9 yr) have higher GPP and transpire more water (up to +7.7%) than the forests they have replaced. This is the result of physiological constraints on water use efficiency and the extremely high yield of OP (six to ten times higher than other oil crops). Hence, the land use efficiency of mature OP, i.e. the high productivity per unit of land area, comes at the expense of water consumption in a trade of water for carbon that may jeopardize local water resources. Sequential replanting and herbaceous ground cover can reduce the severity of such ecohydrological changes and support local water/climate regulation.