Woodland encroachment on United States rangelands has altered the structure and function of shrub steppe ecosystems. The potential community structure is one where trees dominate, shrub and herbaceous species decline, and rock cover and bare soil area increase and become more interconnected. Research from the Desert Southwest United States has demonstrated areas under tree canopies effectively store water and soil resources, whereas areas between canopies (intercanopy) generate significantly more runoff and erosion. We investigated these relationships and the impacts of tree encroachment on runoff and erosion processes at two woodland sites in the Intermountain West, USA. Rainfall simulation and concentrated flow methodologies were employed to measure infiltration, runoff, and erosion from intercanopy and canopy areas at small-plot (0.5 m²) and large-plot (13 m²) scales. Soil water repellency and vegetative and ground cover factors that influence runoff and erosion were quantified. Runoff and erosion from rainsplash, sheet flow, and concentrated flow processes were significantly greater from intercanopy than canopy areas across small- and large-plot scales, and site-specific erodibility differences were observed. Runoff and erosion were primarily dictated by the type and quantity of ground cover. Litter offered protection from rainsplash effects, provided rainfall storage, mitigated soil water repellency impacts on infiltration, and contributed to aggregate stability. Runoff and erosion increased exponentially (r²  =  0.75 and 0.64) where bare soil and rock cover exceeded 50%. Sediment yield was strongly correlated (r²  =  0.87) with runoff and increased linearly where runoff exceeded 20 mm·h⁻¹. Measured runoff and erosion rates suggest tree canopies represent areas of hydrologic stability, whereas intercanopy areas are vulnerable to runoff and erosion. Results indicate the overall hydrologic vulnerability of sagebrush steppe following woodland encroachment depends on the potential influence of tree dominance on bare intercanopy expanse and connectivity and the potential erodibility of intercanopy areas.