Unprecedented land use and land cover (LULC) changes in the Gilgel Tekeze catchment of the upper Nile River basin in Ethiopia may have far-reaching consequences for the long-term sustainability of the natural resources base. This study analyzed the dynamics and hydrologic effects of LULC changes between 1976 and 2003 as shown in satellite imagery. The effects of these LULC changes on the hydrologic response were investigated using the WetSpa model to estimate spatially distributed average annual evapotranspiration, surface runoff, and groundwater recharge. Digital image analysis revealed major increments of cultivated land and settlements of 15.4 and 9.9%, respectively, at the expense of shrubland and grazing lands. Population growth and the associated demand for land were found to be the major driving forces. The WetSpa simulation showed an increase in annual surface runoff of 101 mm and a decrease in groundwater recharge of 39 mm over the period 1976-2003. These results signify an increasing threat of moisture unavailability in the study area and suggest that appropriate land management measures under the framework of the integrated catchment management (ICM) approach are urgently needed.