Isiolo dam is planned to be constructed along the Ewaso Nyiro River to provide water to the planned Isiolo resort city, one of the Lamu Port and Southern Ethiopia Transport (LAPSSET) corridor projects. This paper evaluates the factors driving land cover transitions and their effects, as a consequence of the proposed infrastructure developments with a view to providing evidence-based information for formulating policies and approaches for sustainable land management and development. Landsat images were used to assess Land Use and Land Cover (LULC) change, while land degradation was evaluated based on the United Nations Convention to Combat Desertification guidelines (2000–2020). Spatial overlays of land degradation, LULC change, population, and land tenure were performed to establish their interrelations. The results revealed that water, bareland, built-up, and forest increased by 2043%, 83%, 35%, and 17%, respectively, while shrubland and cropland decreased by 26% and 6%, respectively. Further, 61% of the watershed remained stable, 31% experienced degradation and 8% improved. The main drivers of LULC transitions, and land degradation are population pressure, land tenure, climate change and economic growth. With the development of the LAPSSET projects, it is projected that built-up areas, cropland, and bareland will increase mainly due to population increase, while the forest and shrubland will reduce mainly as a consequence of an increase in built-up areas and potentially poor land management. To achieve sustainable development with net zero loss of natural resources, proper planning for economic investments as well as inclusive land-use planning should be enhanced in drylands such as the Isiolo watershed and similar landscapes.