Hydroclimatic risks and adaptive capacity are not distributed evenly in large river basins of federal countries, where authority is divided across national and territorial governments. Transboundary river basins are a major test of federal systems of governance because key management roles exist at all levels. This paper examines the evolution and design of interstate water allocation institutions in semi-arid federal rivers prone to drought extremes, climatic variability and intensified competition for scarce water. We conceptualize, categorize and compare federal rivers as social–ecological systems to analyse the relationship between governance arrangements and hydroclimatic risks. A diagnostic approach is used to map over 300 federal rivers and classify the hydroclimatic risks of three semi-arid federal rivers with a long history of interstate allocation tensions: the Colorado River (USA/Mexico), Ebro River (Spain) and Murray–Darling River (Australia). Case studies review the evolution and design of water allocation institutions. Three institutional design trends have emerged: adoption of proportional interstate allocation rules; emergence of multi-layered river basin governance arrangements for planning, conflict resolution and joint monitoring; and new flexibility to adjust historic allocation patterns. Proportional allocation rules apportion water between states based on a share of available water, not a fixed volume or priority. Interstate allocation reform efforts in the Colorado and Murray–Darling rivers indicate that proportional allocation rules are prevalent for upstream states, while downstream states seek reliable deliveries of fixed volumes to increase water security. River basin governance arrangements establish new venues for multilayered planning, monitoring and conflict resolution to balance self governance by users and states with basin-wide coordination. Flexibility to adjust historic allocation agreements, without risk of defection or costly court action, also provides adaptive capacity to manage climatic variability and shifting values. Future research should develop evidence about pathways to adaptive capacity in different classes of federal rivers, while acknowledging limits to transferability and the need for context-sensitive design.