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The Caspian Sea (CS) is the largest inland lake in the world. Large variations in sea level and surface area occurred in the past and are projected for the future. The potential impacts on regional and large‐scale hydroclimate are not well understood. Here, we examine the impact of CS area on climate within its catchment and across the northern hemisphere, for the first time with a fully coupled climate model. The Community Earth System Model (CESM1.2.2) is used to simulate the climate of four scenarios: (a) larger than present CS area, (b) current area, (c) smaller than present area, and (d) no‐CS scenario. The results reveal large changes in the regional atmospheric water budget. Evaporation (e) over the sea increases with increasing area, while precipitation (P) increases over the south‐west CS with increasing area. P‐E over the CS catchment decreases as CS surface area increases, indicating a dominant negative lake‐evaporation feedback. A larger CS reduces summer surface air temperatures and increases winter temperatures. The impacts extend eastwards, where summer precipitation is enhanced over central Asia and the north‐western Pacific experiences warming with reduced winter sea ice. Our results also indicate weakening of the 500‐hPa troughs over the northern Pacific with larger CS area. We find a thermal response triggers a southward shift of the upper troposphere jet stream during summer. Our findings establish that changing CS area results in climate impacts of such scope that CS area variations should be incorporated into climate model simulations, including palaeo and future scenarios. Plain Language Summary: The Caspian Sea is the largest land‐locked water body in the world. It is filled by rivers draining a vast region from northern Russia to Iran. The size of the Caspian Sea has varied considerably over recent centuries and millennia due to various factors, including changes in climate. Conversely, as the area of the sea changes it also has impacts on the climate, but there are significant questions about how and where those impacts would be felt. In this study we used a state‐of‐the‐art climate model in which we specified different sizes of Caspian Sea in order to examine how the climate changes as its area increases. We observed that the local seasonal cycle of temperatures gets smaller, and evaporation increases, while there are more spatially complex changes in local rainfall. Furthermore, the impacts on atmospheric circulation occur as far as the north Pacific, with resulting increases in temperature and decreases in sea‐ice coverage in winter as the Caspian area increases. The climate impacts are so significant and geographically extensive that climate models used to simulate climate change (both in future and past scenarios) should incorporate changes to the Caspian Sea area if they are to robustly model regional climate. Key Points: Surface water budget over the Caspian catchment decreases as surface area increases due to negative lake surface‐evaporation feedbackA larger Caspian Sea enhances precipitation over central Asia, warms the north‐western Pacific during winter, and reduces Pacific sea iceAccurate representation of the Caspian Sea in climate models is important to avoid creating additional biases both locally and globally [ABSTRACT FROM AUTHOR]