Water diversion is crucial for maintaining sustainable development in populated lake areas. However, there has been no clear evaluation of how water diversion affects lake health in these areas, which are often limited by scarce in-situ observations. To address this issue, we selected Baiyangdian, a fragmented freshwater shallow lake in Xiongan New Area, as our study area. We conducted a time series analysis of Baiyangdian's water level and area changes, and identified the impact of water diversion on Baiyangdian. We used laser altimetry data (ICESat, ICESat-2), remotely-sensed lake extent, water diversion data, precipitation data, and in-situ lake level data. Our results show that water diversion, rather than natural precipitation, has maintained healthy water levels in Baiyangdian in recent years. Baiyangdian's water level has risen significantly and stabilized, moving from a drying-up level to a healthy level. The intensity of water diversion has increased from 0.91 million m3 in the 2000s to 7.17 million m3 in the 2020s, with a corresponding water level rise from 4.93 m to 7.14 m, respectively. Moreover, a positive feedback loop between economic development, policy-making, and the lake's ecological health can promote the sustainable development of both people and nature.