Integrated analysis of land use change and its effect on catchment water balance allows the selection of appropriate water and land management options for new urban developments to minimise the environmental impacts of urbanisation. A process-based coupled surface water-groundwater model was developed for Southern River catchment (Perth, Western Australia) to investigate the effect of urban development on catchment water balance. It was shown that urbanisation of highly permeable flat catchments with shallow groundwater resulted in significant increase in net groundwater recharge. The increased recharge creates the opportunity to use local groundwater resources for non-potable water supply with the added advantage of reducing the total discharge from new urban developments. This minimises the environmental impacts of increased urbanisation, as higher discharge is often associated with greater nutrient loads to receiving environments. Through the used of water balance modelling it was demonstrated that there are both water and nutrient benefits from local groundwater use in terms of reduced nutrient exports to receiving waters and additional water resources for non-potable water supply.