It has been suggested that rainfall in the Amazon decreases if forest loss exceeds some threshold, but the specific value of this threshold remains uncertain. Here, we investigate the relationship between historical deforestation and rainfall at different geographical scales across the Southern Brazilian Amazon (SBA). We also assess impacts of deforestation policy scenarios on the region’s agriculture. Forest loss of up to 55–60% within 28 km grid cells enhances rainfall, but further deforestation reduces rainfall precipitously. This threshold is lower at larger scales (45–50% at 56 km and 25–30% at 112 km grid cells), while rainfall decreases linearly within 224 km grid cells. Widespread deforestation results in a hydrological and economic negative-sum game, because lower rainfall and agricultural productivity at larger scales outdo local gains. Under a weak governance scenario, SBA may lose 56% of its forests by 2050. Reducing deforestation prevents agricultural losses in SBA up to US$ 1 billion annually.