The potential impact of shrub expansion on the ecosystem is still under debate. In this study, we parameterized shrubland in the Canadian Land Surface Scheme (CLASS) as its fifth plant functional type. We then used CLASS to simulate the hydrological processes in water-stressed shrub-covered sites in the US Southwest and the Mediterranean. CLASS overestimates evapotranspiration (ET) and underestimates runoff at the annual time scale. Rainy season ET overestimation is attributable to the overestimation of soil evaporation. In the Mediterranean, plant transpiration demonstrates low sensitivity to water stress during dry summers. Overly early depletion of soil water leads to the consequent underestimation of ET at the end of dry seasons. In addition, the ratio of transpiration to total ET is underestimated compared with observations. We calibrated the hydrological processes in CLASS accordingly, with the aim of reducing soil evaporation (which dominates ET in the wet seasons) and increasing the sensitivity of plant transpiration to water stress. Realistic simulation of shrubland’s hydrological processes, especially shrub transpiration, is the prerequisite for realistic representations of shrub regions’ biophysical and biochemical impacts on ecosystems.