The stratigraphic record of the Early Holocene in the Nebraska Sand Hills suggests dry climatic conditions and periods of sustained aeolian activity, which resulted in several well-documented instances of sand dunes blocking river drainages in the western Sand Hills. Here, we present evidence that drainage blockage by migrating sand dunes also occurred in the central Sand Hills, where precipitation is higher and dune morphology differs. The South Fork Dismal River valley contains a sequence of aeolian, alluvial, and lacustrine sediments that record a gradual rise of the local water table following a sand dune blockage of the river valley around 11,000 years ago. After the initial development of a wetland, a lake formed and persisted for at least 2000 years. Increased groundwater discharge due to a warm, moist climate in the region after 6500 years ago likely caused the breaching of the dune dam and eventually resulted in the decline of the local water table. Through a careful examination of the intricate relationships between ground water, surface water, and sand movement in a dune field setting, we discuss the hydrologic system's complex response to climate change. We use diatoms to reconstruct the lacustrine environment and optically stimulated luminescence and radiocarbon dating to provide chronological control, based on a careful evaluation of the strengths and limitations of each method in varied depositional environments.