The proliferation of small hydropower plants has profoundly altered the hydrological environment, leading to significant habitat fragmentation. However, the specific impacts of varying dam heights on the hydrological habitats of the Scaly-sided Merganser’s primary food-source fish remain unexplored. This study investigates the influence of dam height variations on hydrodynamic parameters, using the potential distribution area of fish as a quantitative indicator of habitat quality. A combination of the Mike 21 hydrodynamic model and the Connectivity Assessment Tool (CAST) was employed to assess changes in hydrodynamic parameters and their effects on fish distribution under varying dam heights. Specifically, increasing the dam height from 0.5 m to 1 m induces substantial variations in flow velocity and water depth. Furthermore, the potential distribution area of fish expands as the dam height increases from 0 m to 1 m, but declines sharply when the height exceeds 1 m. This study systematically identifies an optimal dam height of 1 m to support the habitat of the endangered Scaly-sided Merganser in mountainous river environments, while avoiding the removal of existing dams. The findings offer critical insights into optimizing dam design, fostering ecological balance, and advancing sustainable water resource management.