Abstract Upscaling unsaturated flow in fractured rock remains challenging because fractures and matrix often exhibit sharply contrasting hydraulic behaviors across saturation states. Here, we demonstrate that unsaturated flow undergoes a transition between matrix‐ and fracture‐dominated regimes. Three‐dimensional direct numerical simulations reveal that this bimodal retention behavior emerges naturally from saturation‐dependent partitioning of flow between fractures and matrix. We analytically derive a generalized retention formulation that identifies a critical saturation marking the transition between the two distinct retention regimes and reproduces the bimodal behavior captured in the numerical simulations. An analytical expression for the critical pressure head is derived to represent the limiting case of fully connected fracture networks, providing a physically based transition criterion and showing good agreement with the numerical results for systems above the percolation threshold. Our results provide a mechanistic framework for understanding and upscaling unsaturated flow in fractured rock, with broad implications for hydrology and geophysics.