Despite extensive paleoenvironmental research on the postglacial history of the Kenai Peninsula, Alaska, uncertainties remain regarding the region's deglaciation, vegetation development, and past hydroclimate. To elucidate this complex environmental history, we present new proxy datasets from Hidden and Kelly lakes, located in the eastern Kenai lowlands at the foot of the Kenai Mountains, including sedimentological properties (magnetic susceptibility, organic matter, grain size, and biogenic silica), pollen and macrofossils, diatom assemblages, and diatom oxygen isotopes. We use a simple hydrologic and isotope mass balance model to constrain interpretations of the diatom oxygen isotope data. Results reveal that glacier ice retreated from Hidden Lake's headwaters by ca. 13.1 cal ka BP, and that groundwater was an important component of Kelly Lake's hydrologic budget in the Early Holocene. As the forest developed and the climate became wetter in the Middle to Late Holocene, Kelly Lake reached or exceeded its modern level. In the last ca. 75 years, rising temperature caused rapid changes in biogenic silica content and diatom oxygen isotope values. Our findings demonstrate the utility of mass balance modeling to constrain interpretations of paleolimnologic oxygen isotope data, and that groundwater can exert a strong influence on lake water isotopes, potentially confounding interpretations of regional climate.