As widely recognized, bush encroachment on mire meadows induces species and habitat biodiversity. However, it is unclear if expansion of either a coherent, continuous forest or randomly distributed groups of trees, so-called tree isles, in formerly open landscapes of mire meadows influences differently the water balance of the system due to changing vegetation structure, landscape, and thus evapotranspiration. In this paper we use a quasi-3D unsaturated-saturated groundwater flow model to reveal the feedback between the actual evapotranspiration and diurnal phreatic groundwater level dynamics. A schematized numerical experiment was setup to elucidate the ecohydrological functioning of mire meadows in the Biebrza Valley (NE Poland), which have been influenced by bush encroachment due to abandonment of mowing. Model calibration and validation was based on field collected data on groundwater dynamics showing the feedback between the evapotranspiration and diurnal groundwater level fluctuations. The model was applied for different landscape compositions of encroachments as well as different stages of shrubby vegetation expansion in a formerly open meadow. It is concluded that for coupled unsaturated-saturated flow models of mires, analysis of diurnal groundwater level fluctuations combined with evapotranspiration quantification is an efficient yet simple method for model calibration and validation. Results of the modelling experiment indicated that the tree-isle-type of bush encroachment entails higher losses of water from the system due to evapotranspiration than coherent forest expansion. For a hypothetical summer drought and an encroachment cover of 50% the total evapotranspiration is shown to be 13% higher for the tree-isle-type encroachment than for expansion of a coherent forest. Consequently, it is concluded that conservation of mires requires continuous control of encroachment not only because of potential loss of biodiversity, but more importantly to limit significant loss of water due to increased evapotranspiration.