After near‐extirpation in the early 20th century, beaver populations are increasing throughout many parts of North America. Simultaneously, there is an emerging interest in employing beaver activity for stream restoration in arid and semi‐arid environments (collectively, ‘drylands’), where streams and adjacent riparian ecosystems are expected to face heightened challenges from climate change and human population growth.Despite growing interest in reintroduction programmes, surprisingly little is known about the ecology of beaver in dryland streams, and science to guide management decisions is often fragmented and incomplete.This paper reviews the literature addressing the ecological effects and management of beaver activity in drylands of North America, highlighting conservation implications, distinctions between temperate and dryland streams, and knowledge gaps.Well‐documented effects of beaver activity in drylands include changes to channel morphology and groundwater processes, creation of perennial wetland habitat, and substantial impacts to riparian vegetation. However, many hypothesized effects derived from temperate streams lack empirical evidence from dryland streams.Topics urgently in need of further study include the distribution and local density of beaver dams; consequences of beaver dams for hydrology and water budgets; and effects of beaver activity on the spread of aquatic and riparian non‐native species.In summary, this review suggests that beaver activity can create substantial benefits and costs for conservation. Where active beaver introductions or removals are proposed, managers and conservation organizations are urged to implement monitoring programmes and consider the full range of possible ecological effects and trade‐offs. Copyright © 2014 John Wiley & Sons, Ltd.