Abstract: Reservoir impoundment can modify the stress state of the shallow crust through surface water loading and pore-pressure diffusion, thereby affecting the stability of nearby faults. This process is an important issue in engineering safety assessment and reservoir-induced seismicity risk evaluation, especially for small- and medium-sized reservoirs located in tectonically complex or karst-fracture-developed regions. Although the loading scale of such reservoirs is generally smaller than that of large deep reservoirs, local fault segments may still exhibit measurable stress perturbations if they are favorably oriented with respect to the regional stress field and the reservoir-induced load. The Daxingzhai Reservoir, located in Jishou, western Hunan Province, is a medium-sized water conservancy project adjacent to the Yanmen normal fault and the Gaoyanpingyi normal fault. Considering the shallow microseismicity and karst-fracture geological background in western Hunan, it is necessary to evaluate both the pre-impoundment deformation background and the possible fault response under future impoundment conditions. In this study, we integrate Sentinel-1 time-series InSAR observations from 2017 to 2025, an elastic layered Earth loading model, a pore-pressure diffusion model, and Coulomb stress analysis to assess the surface deformation, stress perturbation, and fault stability changes associated with future impoundment of the Daxingzhai Reservoir. First, 246 ascending Sentinel-1 SAR images were processed using a small baseline subset InSAR approach to obtain the line-of-sight (LOS) deformation velocity field and cumulative deformation time series before impoundment. The results show that the LOS deformation rates in the reservoir area are generally less than 1 cm/yr, and approximately 86% of the valid pixels have absolute deformation rates lower than 4 mm/yr. The selected time-series feature points also show stable cumulative deformation, with no obvious sustained acceleration or abrupt displacement. No spatially continuous or temporally persistent significant deformation anomalies related to landslides, collapses, active faults, or local engineering disturbances were identified, indicating that the reservoir area has a relatively stable surface deformation background before impoundment. Second, a scenario-based reservoir loading model was constructed using the designed water-level parameters, reconstructed reservoir geometry, and water-level–storage relationship. The elastic loading simulation indicates that, after the reservoir first reaches the normal water level, the maximum surface subsidence is approximately 4–5 mm. The significant deformation is mainly confined to the reservoir and its near-field area within about 2–3 km. During the long-term operation stage, the simulated surface displacement responds almost instantaneously to seasonal water-level fluctuations, with an annual periodic variation on the order of approximately 1 mm. These results suggest that the regional-scale elastic deformation caused by the Daxingzhai Reservoir is relatively weak and spatially limited. Third, the three-dimensional stress tensor induced by reservoir loading was projected onto the nearby fault planes to calculate the normal stress change, shear stress change, diffusive pore-pressure increment, and Coulomb stress change at depths of 2, 4, and 6 km. The results indicate that the Yanmen normal fault is dominated by negative Coulomb stress changes, suggesting that reservoir impoundment generally tends to inhibit fault rupture along this fault. In contrast, the Gaoyanpingyi normal fault shows stronger along-strike heterogeneity. At the eastern segment of this fault, the Coulomb stress change including pore-pressure effects reaches approximately 23 kPa at a depth of 2 km, exceeding the commonly used 10 kPa reference level in static stress-triggering studies. However, this positive response decreases rapidly with depth, to approximately 9 kPa at 4 km and 5 kPa at 6 km, indicating that the stress perturbation is mainly concentrated in the shallow part of the fault. A comparison between calculations with and without pore-pressure effects shows that the relatively high positive Coulomb stress increase on the shallow eastern segment of the Gaoyanpingyi normal fault is mainly controlled by reservoir-load-induced shear stress increase and its favorable projection onto the fault plane, whereas the diffusive pore-pressure term provides only a minor additional contribution. Sensitivity tests for different hydraulic diffusivities and friction coefficients further indicate that the main conclusion is robust: the shallow eastern segment of the Gaoyanpingyi normal fault remains the most sensitive segment, while the Yanmen normal fault remains generally stable or rupture-inhibiting. Overall, the stress perturbation induced by impoundment of the Daxingzhai Reservoir is limited at the regional scale, suggesting a relatively low potential for moderate-to-strong reservoir-induced seismicity. Nevertheless, the shallow eastern segment of the Gaoyanpingyi normal fault should be regarded as a key monitoring segment after impoundment, and post-impoundment seismic monitoring, InSAR deformation tracking, groundwater observation, and field inspection are recommended.