Major environmental changes were occurring when the first modern humans arrived in South America during the Pleistocene-Holocene transition. How these changes shaped human-environmental interactions across this period remains unclear. We analyzed the stratigraphy, biogeochemistry, and paleoclimatic models of the Ancient Tagua Tagua Lake (ATTL) in central Chile, one of the few continuous records of human and megafauna interactions with their environment in South America, to reconstruct the ATTL's ecosystem dynamics over the past 20,000 years. The results reveal that the ATTL transitioned from a shallow, cool lake with storm-driven alluvial deposition to a warmer, deeper, and more productive lake about 12,500 years ago, aligning with the arrival of early humans. The ATTL became wetter but experienced severe droughts between 11,000 and 8,500 years ago, linked to shifts in Southern Westerly Winds and ENSO-like patterns. Fluctuating conditions drove humans and fauna to seek refuge in the basin, emphasizing local paleohydrology's role in shaping early human-ecosystem interactions.