The conventional hydrological modeling framework with a traditional streamflow-alone calibration approach is often challenged with the difficulty of accurately simulating the extreme flow conditions. This study explores the possibility of improving the simulation of extreme hydrological events by incorporating the antecedent soil saturation conditions using the Gravity Recovery and Climate Experiment (GRACE) terrestrial water storage anomaly (TWSA). In this study, a stepwise calibration approach is adopted on the hydrological predictions for the environment (HYPE) model, based on the GRACE-derived TWSA and streamflow observations, and is compared with the conventional calibration approach based only on streamflow observations. The performance of the two modeling frameworks is demonstrated over a tropical basin in Indian subcontinent, Mahanadi Basin, for the study period of 2003–2016. Results showed that the inclusion of GRACE data in addition to the streamflow observations significantly reduced the uncertainty of sensitive parameters and improved the model realizations. The model calibrated using GRACE-derived TWSA helped to improve the model physics and provided more reliable estimates of the terrestrial water storage. Although both calibration approaches are found to be equally good in simulating the mean streamflow conditions, the GRACE-based approach successfully simulates different aspects of the extreme flow conditions. An additional calibration case of remotely sensed top-layer soil moisture instead of the GRACE-derived TWSA illustrate that better model parameterization requires complete information of both surface water and groundwater storage in the modeling framework. Overall, the study highlights the potential of GRACE-derived TWSA estimates in improving the model physics, which further helps in the modeling of extreme flows over basins subjected to frequent extreme events.