The present disclosure is directed to a system and method for forecasting a farm-level power output of a wind farm having a plurality of wind turbines. The method includes collecting actual operational data and/or site information for the wind farm. The method also includes predicting operational data for the wind farm for a future time period. Further, the method includes generating a model-based power output forecast based on the actual operational data, the predicted operational data, and/or the site information. In addition, the method includes measuring real-time operational data from the wind farm and adjusting the power output forecast based on the measured real-time operational data. Thus, the method also includes forecasting the farm-level power output of the wind farm based on the adjusted power output forecast.