The coarse spatial resolution of the Gravity Recovery and Climate Experiment (GRACE) dataset has limited its application in local water resource management and accounting. Despite efforts to improve GRACE spatial resolution, achieving high resolution downscaled grids that correspond to local hydrological behaviour and patterns is still limited. To overcome this issue, we propose a novel statistical downscaling approach to improve the spatial resolution of GRACE-terrestrial water storage changes (ΔTWS) using precipitation, evapotranspiration (ET), and runoff data from the Australian Water Outlook. These water budget components drive changes in the GRACE water column in much of the global land area. Here, the GRACE dataset is downscaled from the original resolution of 1.0° × 1.0° to 0.05° × 0.05° over a large hydro-geologic basin in northern Australia (the Cambrian Limestone Aquifer—CLA), capturing sub- grid heterogeneity in ΔTWS of the region. The downscaled results are validated using data from 12 in-situ groundwater monitoring stations and water budget estimates of the CLA’s land water storage changes from April 2002 to June 2017. The change in water storage over time (ds/dt) estimated from the water budget model was weakly correlated (r = 0.34) with the downscaled GRACE ΔTWS. The weak relationship was attributed to the possible uncertainties inherent in the ET datasets used in the water budget, particularly during the summer months. Our proposed methodology provides an opportunity to improve freshwater reporting using GRACE and enhances the feasibility of downscaling efforts for other hydrological data to strengthen local-scale applications.