Dam site selection in karst regions is an extremely important issue in terms of dam safety and environmental impact. Groundwater in a karst aquifer near a selected dam site is deemed to be impacted greatly by the dam. This study uses the Kangir Reservoir of Iran as an example to illustrate the interrelationships of karst-groundwater condition, lithology of the dam reservoir, future climate changes, and overexploitation of water resources in the area. This study conducted a comprehensive analysis of water balance, groundwater flow, hydrochemistry, characteristics of geologic formations with respect to the quantity and quality of water, distribution of karst and evaporative formations in the catchment, and tectonic setting to highlight the importance of hydrogeological conditions on the water quality and quantity of the Kangir Reservoir. The main findings include, first, a major part of the highland karst aquifer in the Asmari Formation within the dam catchment does not drain into the dam reservoir. Instead, it leaks into the downstream Siahgel Region of the dam mainly along the Zarneh-Siahgel fault zone through the karstic Asmari Formation. Second, selecting the dam site on evaporative Gachsaran Formation causes degradation of water quality in the reservoir. The results of this study demonstrate that considering karst hydrogeological conditions is indispensable for dam site selection from the point of view of groundwater quantity and quality impacted by the dam.