Inter-basin water transfers (IBTs) have the potential to substantially impact the hydrological dynamics and associated biogeochemical processes in managed river basins. However, the representation of this critical process is often missing in Earth System Models (ESMs), largely due to their traditionally coarse spatial resolution and inadequate representation of human activities. As ESMs modernize towards increasing spatial resolution and improved representation of human activities, we expect that integration of IBTs into these models will become an urgent priority. In this study, we implemented a pioneering reservoir-to-reservoir IBT scheme in the Energy Exascale Earth System Model (E3SM). The scheme is evaluated in the Delaware River Basin, which provides up to 800 million gallons of fresh water per day to New York City through the Delaware Aqueduct. The modeling results suggest that during drought periods, such as 1998-1999, IBTs can reduce the streamflow up to 18% near the Delaware Estuary. This reduction in freshwater discharge may further exacerbate saltwater intrusion in the Delaware River, highlighting the implications of IBTs on the overall hydrological dynamics of the region. The study also underscores the critical importance of including IBTs for more accurate modeling of hydrological and coastal dynamics in modern ESMs.