Land use/cover change is one of the responsible factors for changing the water balance of the watershed by altering the magnitude of surface runoff, interflow, base flow, and evapotranspiration. This study was aimed at evaluating the impacts of land use/cover change on the water balance of Bilate watershed between 1989, 2002, and 2015. The water balance simulation model (WaSiM) was used to access the impacts of land use/cover change on water balance. The model was calibrated (1989–2003) and validated (2007–2015) using the streamflow of at Bilate Tena gauging station. The result of land-use dynamics showed land use/cover change has a significant impact on the water balance of the watershed like on runoff production, base flow, interflow, evapotranspiration, and total simulation flow. In the study watershed, the change in total simulated flow increased by 77.83%, and surface runoff, interflow, and base flow increased by 80.23%, 75.69%, and 87.79% respectively and evapotranspiration decreased by 6% throughout the study period (1989–2015). The results obtained from this study revealed that the watershed is under the land/cover change that shows its impacts on hydrological processes and water balance. Thus, effective information regarding the environmental response of land use/cover, change is important to hydrologists, land-use planners, watershed management, and decision-makers for sustainable water resource projects and ecosystem services. Therefore, the policy-makers, planners, and stakeholders should design strategies to ensure the sustainability of the watershed hydrology for the sake of protecting agricultural activities, and urban planning and management systems within the watershed area.