The Southern High Plains (SHP) region of Texas in the United States, where cotton is grown in a vast acreage, has the potential to grow cellulosic bioenergy crops such as perennial grasses and biomass sorghum (Sorghum bicolor). Evaluation of hydrological responses and biofuel production potential of hypothetical land use change from cotton (Gossypium hirsutum L.) to cellulosic bioenergy crops enables better understanding of the associated key agroecosystem processes and provides for the feasibility assessment of the targeted land use change in the SHP. The Soil and Water Assessment Tool (SWAT) was used to assess the impacts of replacing cotton with perennial Alamo switchgrass (Panicum virgatum L.), Miscanthus ×giganteus (Miscanthus sinensis Anderss. [Poaceae]), big bluestem (Andropogon gerardii) and annual biomass sorghum on water balances, water use efficiency and biofuel production potential in the Double Mountain Fork Brazos watershed. Under perennial grass scenarios, the average (1994–2009) annual surface runoff from the entire watershed decreased by 6–8% relative to the baseline cotton scenario. In contrast, surface runoff increased by about 5% under the biomass sorghum scenario. Perennial grass land use change scenarios suggested an increase in average annual percolation within a range of 3–22% and maintenance of a higher soil water content during August to April compared to the baseline cotton scenario. About 19.1, 11.1, 3.2 and 8.8 Mg ha−1 of biomass could potentially be produced if cotton area in the watershed would hypothetically be replaced by Miscanthus, switchgrass, big bluestem and biomass sorghum, respectively. Finally, Miscanthus and switchgrass were found to be ideal bioenergy crops for the dryland and irrigated systems, respectively, in the study watershed due to their higher water use efficiency, better water conservation effects, greater biomass and biofuel production potential, and minimum crop management requirements.