The headwaters of the Eastern Rocky Mountains provide critical water resources to Alberta, Saskatchewan, and Manitoba. Rapid climate warming has increased the need to understand how alpine and subalpine ecohydrological processes influence mountain water yield, particularly as treeline dynamics respond to changing climate conditions. This study examines the hydrological impacts of emerging krummholz patches and tree islands near treeline over two years, focusing on their effects on transpiration (T) and evapotranspiration (ET) in the Canadian Rocky Mountains. Results demonstrate that mean air temperature increased from 7.62 °C in 2024 to 8.86 °C in 2025, while daily maximum temperatures declined, indicating warmer but less extreme conditions in 2025. Net radiation increased substantially in 2025, whereas wind speed and precipitation decreased, resulting in an earlier snowmelt, a 38-day longer snow-free period, and reduced late-season water inputs. Soil water content remained consistently higher beneath krummholz and tree islands than in open areas, demonstrating strong canopy-mediated microclimatic buffering. Tree islands exhibited significantly higher transpiration rates than krummholz in both years, reflecting greater tree size and structural complexity. In 2024, transpiration accounted for a larger fraction of ecosystem ET (mean T/ET = 0.59) compared to 2025 (0.48), indicating stronger canopy control under wetter conditions. These results demonstrate that expanding tree islands can substantially alter ET dynamics and potentially reduce runoff, highlighting the importance of incorporating treeline vegetation change into future water resource management strategies.