Forecasting climate change effects on aquatic fauna and their habitat requires an understanding of how water temperature responds to changing air temperature (i.e., thermal sensitivity). Previous efforts to forecast climate effects on brook trout habitat have generally assumed uniform air-water temperature relationships over large areas that cannot account for groundwater inputs and other processes that operate at finer spatial scales. We developed regression models that accounted for groundwater influences on thermal sensitivity from measured air-water temperature relationships within forested watersheds in eastern North America (Shenandoah National Park, USA, 78 sites in 9 watersheds). We used these reach-scale models to forecast climate change effects on stream temperature and brook trout thermal habitat, and compared our results to previous forecasts based upon large-scale models. Observed stream temperatures were generally less sensitive to air temperature than previously assumed, and we attribute this to the moderating effect of shallow groundwater inputs. Predicted groundwater temperatures from air-water regression models corresponded well to observed groundwater temperatures elsewhere in the study area. Predictions of brook trout future habitat loss derived from our fine-grained models were far less pessimistic than those from prior models developed at coarser spatial resolutions. However, our models also revealed spatial variation in thermal sensitivity within and among catchments resulting in a patchy distribution of thermally suitable habitat. Habitat fragmentation due to thermal barriers therefore may have an increasingly important role for trout population viability in headwater streams. Our results demonstrate that simple adjustments to air-water temperature regression models can provide a powerful and cost-effective approach for predicting future stream temperatures while accounting for effects of groundwater.