Yeah, the water goes over the top of the lip of the tank, down through the UV filter, then up and over the falls. The design, apart from making it easy to hide the heater and UV (and slow the flow of the water), also makes dry ferts really easy to dose. I considered drilling holes for the same reason as you, having a tight lid, but it seemed to be too much hassle for little benefit. If you look carefully a couple of the pics you can see the green craft mesh I had to stick in the top of the waterfall to keep the frogs from getting out. But even with the opening there and another air opening at the other side of the back of the tank it stays about 70% humidity inside.