Despite the rapid economic and population growth, the risks related to the current dynamics of land use and land cover (LULC) have attracted a lot of attention in Ethiopia. Therefore, a complete investigation of past and future LULC changes is essential for sustainable water resources and land-use planning and management. Since the 1980s, LULC change has been detected in the upper stream of the Awash River basin. The main purpose of this research was to investigate the current dynamics of LULC and use the combined application of the cellular automata and the Markov chain (CA–Markov) model to simulate the year 2038 LULC in the future; key informant interviews, household surveys, focus group discussions, and field observations were used to assess the consequences and drivers of LULC changes in the upstream Awash basin (USAB). This research highlighted the importance of remote sensing (RS) and geographic information system (GIS) techniques for analyzing the LULC changes in the USAB. Multi-temporal cloud-free Landsat images of three sequential data sets for the periods (1984, 2000, and 2019) were employed to classify based on supervised classification and map LULC changes. Satellite imagery enhancement techniques were performed to improve and visualize the image for interpretation. ArcGIS10.4 and IDRISI software was used for LULC classification, data processing, and analyses. Based on Landsat 5 TM-GLS 1984, Landsat 7 ETM-GLS 2000, and Landsat 8 2019 OLI-TIRS, the supervised maximum likelihood image classification method was used to map the LULC dynamics. Landsat images from 1984, 2000, and 2019 were classified to simulate possible LULC in 2019 and 2038. The result reveals that the maximum area is covered by agricultural land and shrubland. It showed, to the areal extent, a substantial increase in agricultural land and urbanization and a decrease in shrubland, forest, grassland, and water. The LULC dynamics showed that those larger change rates were observed from forest and shrubland to agricultural areas. The results of the study show the radical changes in LULC during 1984–2019; the main reasons for this were agricultural expansion and urbanization. From 1984 to 2019, agriculture increased by 62%, urban area increased by 570.5%, and forest decreased by 88.7%. In the same year, the area of shrubland decreased by 68.6%, the area of water decreased by 65.5%, and the area of grassland decreased by 57.7%. In view of the greater increase in agricultural land and urbanization, as well as the decrease in shrubland, it means that the LULC of the region has changed. This research provides valuable information for water resources managers and land-use planners to make changes in the improvement of future LULC policies and development of sub-basin management strategies in the context of sustainable water resources and land-use planning and management.