A recently introduced measurement approach allows in situ determination of subsurface soil water evaporation by means of heat-pulse probes (HPP). The latent heat component of subsurface evaporation is estimated from the residual of the sensible heat balance. This heat balance method requires measurement of vertical soil temperature and estimates of thermal properties for soil water evaporation determination. Our objective was to employ numerically simulated thermal and hydraulic processes using constant or diurnally cycled surface boundary conditions to evaluate and understand this technique. Three observation grid spacings, namely, 6 mm (tri-needle HPP), 3 mm (penta-needle HPP) and 1 mm, along with three soil textures (sand, silt, and silty clay) were used to test the heat balance method. The comparison of heat balance–based evaporation rate estimates with an independent soil profile water balance revealed substantial errors when thermal conductivity was averaged spatially across the evaporation front. Since the conduction component of heat flux is the dominant process at the evaporation front, the estimation of evaporation rate was significantly improved using depth-dependent instead of a space-averaged . A near-surface “undetectable zone” exists, where the heat balance calculation is irreconcilable, resulting in underestimation of total subsurface evaporation. The method performs better for medium- and coarse-textured soils than for fine-textured soils, where portions of the drying front may be maintained longer within the undetectable zone. Using smaller temperature sensor spacing near the soil surface minimized underestimation from the undetectable zone and improved accuracy of total subsurface evaporation rate estimates.