In this study, a three-dimensional hydrodynamic model (ELCOM) coupled to a water quality and ecosystem model (CAEDYM) were used to simulate limnological processes, stratification and mixing, and prediction of the released water quality in the proposed designed reservoir in southwest Iran (Abolabbas Reservoir). Also, investigating and defining the appropriate outlet levels on the dam wall was the other prospective of this study. Different scenarios were analyzed and designed to simulate different conditions of drought periods in different severities. The results indicated that, in all scenarios, the reservoir regulated the inflow quality parameters very well via both power plant and irrigation outlets. No hypolimnetic anoxia were observed in the reservoir in normal conditions. The simulation of drought scenarios showed an overall degradation of all parameters when the drought severity increases. The drought affected the dissolved oxygen concentration directly as one of the major environmental water quality indices. During the worst drought scenarios, the anoxia in a 40-meter bottom layer of the hypolimnion throughout the year and the anoxic outflow for 5 months were observed. In order to reduce the hypolimnetic anoxia, a scenario with a decreased bottom outlet by 10 meters below the designed level (to be 14 meters below the irrigation outlet) and hypolimnetic withdrawal was designed and simulated. While the irrigation outlet was closed, the hypolimnetic withdrawal via bottom outlet reduced the anoxic layer from 40 to 20 meters thickness and also reduced the anoxic outflow from 5 to 3 months.