This work investigated water samples collected from Tapeng Lagoon and three neighbouring rivers (the Kaoping River, Tungkang River and Lingbeng River) in Taiwan, Republic of China. Canonical discriminant analysis was applied to identify the source of pollution in neighbouring rivers outside Tapeng Lagoon. The two constructed discriminant functions showed a marked contribution to all discriminant variables, and the total nitrogen, algae, dissolved oxygen and total phosphate were combined as the nutrient effect factor. The recognition capacities of the two discriminant functions were 95.6% and 4.4%, respectively. The water quality in the Kaoping River most strongly controlled the water quality in Tapeng Lagoon. Disassembling the oyster frames and fishery boxes had improved the water quality markedly. The methodology and results provide useful information concerning watershed management and may be applicable to other basins with similar properties that are experiencing similar coastal environmental issues.