Hatchery salmonid smolts are often reared using groundwater with elevated temperatures to maximize growth. Previous work has shown that rearing hatchery smolts in surface water with a more natural thermal regime resulted in increased return rates of adult landlocked Atlantic salmon (Salmo salar). We evaluated whether landlocked Atlantic salmon reared in surface water with a natural temperature regime have altered physiological smolt characteristics compared with fish reared in groundwater with elevated winter temperatures. Hatchery fish were sampled three consecutive years from January to May. Additional fish were released as smolts, recaptured, and compared with fry-stocked smolts. Surface water smolts had earlier peaks of plasma T4, lower T3 levels, later peak cortisol, and lower gill Na+/K+-ATPase activity as compared with groundwater smolts. After release and recapture, surface water fish had elevated plasma T4 and gill Na+/K+-ATPase activity compared with groundwater fish, but less than stream-reared fish. Elevated plasma T4 in surface water fish in the hatchery and after release may have promoted imprinting and other aspects of smolt development, contributing to the higher adult return rates of a cohort reared in surface water.