Groundwater modeling is an important research activity in the investigation of the water cycle in the Nebraska’s Sand Hills. A study area was selected in the central Nebraska Sand Hills to analyze the interactions between a number of hydrologic components and the aquifer systems. The western part of the study area contains numerous small lakes and the depth to groundwater table is usually shallow. Thus, the interactions between the aquifer and the surface water systems as well as the atmosphere are considered strong. Two rivers in the middle and eastern parts gain more than 90% of their streamflow from the surrounding aquifers; this results in a remarkable steadiness of the streamflow. Depth to the groundwater table can be as deep as 50 m in the middle part; this reduces the loss of groundwater through evapotranspiration (ET). Groundwater modeling techniques have been used to analyze the water budgets in the aquifers beneath the sand dunes in the study area. The groundwater system was simulated over the period between 1979 and 1986 with an above-normal precipitation in 1983. The inflows that supply the aquifers include recharge from precipitation, stream infiltration, and lateral groundwater flows along the domain boundaries; the outflows that deplete the aquifers include ET, groundwater discharge to the rivers, and outward groundwater flows along the boundaries. The precipitation recharge and ET are the two hydrologic components that connect the aquifer systems with the atmosphere. For the simulation period, precipitation recharge provided about 60% of the total inflow to the aquifer, and the groundwater flow along the domain boundaries accounted for about 40% of the total inflow. On the other hand, groundwater discharge to the Dismal and Middle Loup rivers accounted for about 57% of the total outflow (or the two rivers gained about 631 million cubic meters of groundwater per year); ET resulted in a loss of groundwater of about 15% of the total outflow; and the groundwater that flowed out the domain accounted for about 28% of the total outflow. The rate of ET is a function of the depth to groundwater table and shows a strong spatial variation in the study area; higher ET rates occurred in the western and eastern parts of the study area. This study has provided a useful information for surface water and groundwater management in this area.