Most current land models approximate the terrestrial hydrological processes as one-dimensional vertical flow, neglecting the lateral water movement from ridges to valleys. Such lateral flow is fundamental at catchment scales and becomes crucial for finer-scale land models. To test the effect of incorporating lateral flow towards three-dimensional representations of hydrological processes in the next generation land models, we integrate a water tracer model into the WRF-Hydro framework to track water movement from precipitation to discharge and evapotranspiration. This hydrologic-tracer integrated system allows us to identify the key mechanisms for how lateral flow affects the flow paths and transit times. By comparing modeling experiments with and without lateral routing in two contrasting catchments (H.J. Andrews in Oregon and upper Rattlesnake Creek basin in Kansas), we find that the inclusion of lateral flow extends the residence times of precipitation if hydrologic connectivity is limited. Event water has less drainage loss (i.e. less groundwater recharge) in ridges and accumulates in valleys. Residence times can also be extended by allowing reinfiltration of infiltration-excess flow, which is missing in most land models. In situations with high hydrologic connectivity, lateral flow can effectively accelerate the water release to streams and decrease the residence time. However, the residence times are substantially underestimated by the model compared with isotope-derived estimates, which may be addressed through a better coupling of groundwater with surface water in WRF-Hydro. These changes in flow paths and transit times due to lateral routing suggest that model limitations identified here are likely shared by other models, thus this study helps us better understand the fundamental differences in terrestrial hydrology simulated by land models with and without lateral flow representation.