<p>This study focuses on the influence of cavities within dam foundations on seepage behavior and water loss from reservoirs—an aspect often overlooked or only briefly mentioned in previous research. While most studies have considered such subsurface anomalies as secondary concerns, this work emphasizes their potential role as active contributors to seepage and reservoir inefficiency. A physical model was developed to simulate seepage through a homogeneous soil foundation beneath an impermeable dam, with a perforated plastic pipe representing a cavity within the foundation. Physical model results showed that the presence of a cavity increased the seepage inflow from the reservoir into the foundation by 29.24%, while reducing the outflow at the downstream boundary—i.e., the portion of seepage that traverses the entire foundation length—by 4.85%. Notably, 30.6% of the total seepage volume was captured through the cavity alone. To extend these findings, a numerical model was developed using SEEP/W, which showed strong agreement with the physical model. The validated model was then used to analyze the effect of cavity location in the foundation, considering both horizontal and vertical positions. The results revealed that cavities placed downstream horizontally or at higher elevations vertically, closer to the dam, led to lower total seepage and cavity discharge. This integrated physical–numeral approach provides a novel and practical framework for evaluating the hydraulic implications of foundation cavities, emphasizing their significance in seepage analysis and dam safety assessments.</p>