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Abstract The freshwater content of the Arctic Ocean has increased dramatically in the last two decades, particularly in the Beaufort Gyre. However, quantifying the sources of this change is an observational challenge and has historically been limited by methodological differences across studies. Here we derive observation‐based freshwater budgets from volume and mass budgets for the Arctic Ocean and the Beaufort Gyre from 2003 to 2020. Our budgets include all sources and sinks (river runoff, precipitation minus evaporation, land ice melt, sea ice export, sea ice melt, and ocean fluxes) as well as volume and mass storage terms measured by satellite. We find that Arctic freshwater changes are dominated by changes in the Beaufort Gyre, and we reconcile this with previous studies that argue for freshwater compensation between the Beaufort Gyre and the rest of the Arctic. We use inverse methods to close the volume and mass budgets within observational uncertainty and link the observed Arctic freshwater changes to the sources and sinks. Our budget analysis demonstrates that small changes to the ocean fluxes (smaller than we can measure) can account for all freshwater storage changes in the Arctic, highlighting the need for more careful accounting and detailed ocean observations in this rapidly changing environment.