Conjunctive use of surface water and groundwater is rapidly growing in many developing countries as an adaptation strategy to climate variability and change. However, the interactions between the groundwater and the surface water systems are not adequately understood, especially among the East African rift valley lakes, where data paucity has limited studies and reporting on the spatial influence of catchment heterogeneity. In its humble contribution to sustainable water development, this study aimed to present a platform for understanding the influence of climatic variation and anthropogenic activities on surface water–groundwater interactions. To be relevant locally, Lake Babati, a freshwater lake in Northern Tanzania that provides the community with fish, freshwater, and a habit for hippopotamus, was studied. The study applied hydrological simulation, grey relational analysis, and stepwise regression analysis to model the hydrological behaviour of the lake. Further, it used hydrogeochemistry and environmental isotopes to identify groundwater fluxes and draw the conceptual understanding of surface water – groundwater interaction and applied topography-based indices to spatially map groundwater potentials within the catchment. The results showed that Lake Babati level is significantly declining (p-value < 0.01) at a rate of 25 mm per annum. The lake level decline could not be explained by climatic variability since the decline occurred when both evaporation and rainfall showed no significant changes either seasonally or annually. Instead, the consistent decline of the lake level in all seasons could be due to the expansion of the spillway, which effectively lowered the lake reservoir level and increased the lake outflow in rainy seasons. The hydro-geochemistry and isotopes data showed that the lake water and groundwater interact and are in hydraulic connections. Further, using Height Above Nearest Drainage based and Topography Wetness Index based methods, the study developed two groundwater potential maps to predict groundwater spatial variability and guide groundwater prospecting efforts and subsequent development. Given that Lake Babati is in a hydraulic connection with the groundwater, its consistent decline will likely impact the groundwater system. Similarly, abstracting groundwater at unsustainable rates could lower the lake levels further. Therefore, integrated water resources management is required for sustainable water resources development and management in the catchment. Mandatory and continuous monitoring of the water resources (groundwater levels, river flows, and lake levels) is recommended to generate quality in situ data for future studies.