Agricultural intensification often contributes to soil degradation. Mulch and biochar help reduce erosion and runoff while improving organic matter and crop habitat. However, optimal application strategies and the combined advantages of mulch and biochar remain underexplored. This study aimed to evaluate how biochar and mulch affect soil hydrology, erosion, and phytotoxicity, under mixed and layered application strategies: (i) biochar mix (2.8% by weight); (ii) biochar layer (surface application of 10 Mg ha⁻¹); (iii) mulch layer (2 Mg ha⁻¹ of straw mulch); and (iv) mulch + biochar layer (a straw mulch layer of 2 Mg ha⁻¹ on top of a biochar layer of 10 Mg ha⁻¹). Thirty-minute rainfall simulations (at 85.6 mm h⁻¹) on sandy loam soils of a vineyard and olive orchard tested treatment effects on soil hydrology and erosion. The leachate collected from the simulations was used to test treatments phytotoxicity, using Lactuca sativa L. Runoff and interrill erosion decreased by 52–91% and 55–81%, respectively, with the greatest reductions in the treatments that included a mulch layer. Biochar increased root length (29–45%), while mulch had no significant effect. The mulch + biochar treatment performed best, highlighting the products’ complementary benefits in reducing soil degradation and improving soil habitat.