Dam construction and operation can result in serious disturbances to the downstream flow regime and fluvial process, river morphology and the river's ecological condition worldwide. To understand the effects of discharge and sedimentation on fish habitats and ecosystems, an ecohydraulic approach was applied to one of the mega hydropower schemes in the downstream Lancang River (Tibet). The approach comprised a dam operation module with high flow and sediment transport and the application of a dynamic fish habitat model for assessing habitat fragmentation of two targeted fish species: Schizothorax prenanti (S. prenanti) and Schizothorax davidi (S. davidi). The hydrodynamics of the river system and the assessed fish habitat show a significant impact of dam construction and operation on the downstream riverine ecosystem, in which fish habitats were found rapidly deteriorated with the destruction of feeding and reproductive grounds. To improve fish habitat after dam construction, the sediment supplement was applied to the river and shown to be a useful restoration strategy, which recovers the habitat fragmentation of target fish. Our model not only is useful to predict dam operation impacts on the Lancang River's ecological status but also shows great potential in mitigating hydropower‐induced environmental impacts and developing river conservation guidelines worldwide.