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This study focuses on development and application of a new modeling approach for a comprehensive flood hazard assessment along protected river reaches considering dike failures. The proposed Inundation Hazard Assessment Model (IHAM) represents a hybrid probabilistic‐deterministic model. It comprises three models that are coupled in a dynamic way: (1) 1D unsteady hydrodynamic model for river channel and floodplain between dikes; (2) probabilistic dike breach model which determines possible dike breach locations, breach widths and breach outflow discharges; and (3) 2D raster‐based inundation model for the dike‐protected floodplain areas. Due to the unsteady nature of the 1D and 2D models and runtime coupling, the interdependence between the hydraulic loads on dikes at various locations along the reach is explicitly considered. This ensures a more realistic representation of the fluvial system dynamics under extreme conditions compared to the steady approaches. The probabilistic dike breach model describes dike failures due to three failure mechanisms: overtopping, piping and slope instability caused by seepage flow through the dike core (micro‐instability). The 2D storage cell model computes various flood intensity indicators such as water depth, flow velocity, and inundation duration. IHAM is embedded in a Monte Carlo simulation in order to account for the natural variability of the input hydrograph form and the randomness of dike failures. Besides binary (wet/dry) inundation patterns, IHAM generates new probabilistic flood hazard maps for each intensity indicator and the associated uncertainty bounds. Furthermore, the novel probabilistic dike hazard maps indicate the failure probability of dikes for each considered breach mechanism.