Fungi are an important, yet often, neglected component of the aquatic microflora, and is responsible for primary decomposition and further processing of organic matter. By comparison, the ecological roles of terrestrial fungi have been well-studied, but the diversity and function of fungi that populate aquatic environments remain poorly understood. Here, the impact of urbanization on fungal diversity and community composition in the canal system of Suzhou was assessed by sequencing the internal transcribed spacer 1 (ITS1) region of the rRNA operon. It was amplified from environmental DNA that has been extracted from water samples and pre-deployed decomposing leaves collected from nine sampling locations (high, medium and low urbanization) over two seasons. The fungal diversity and community composition were determined by bioinformatic analysis of the large DNA sequence datasets generated to identify operational taxonomic units (OTUs) for phylogenetic assignment; over 1 million amplicons were sequenced from 36 samples. The alpha-diversity estimates showed high differences in fungal diversity between water and leaf samples, and winter versus summer. Higher numbers of fungal OTUs were identified in both water and leaf samples collected in the summer, and fungal diversity was also generally higher in water than on colonized leaves in both seasons. The fungal community on leaves was usually dominated by Ascomycetes, especially in winter, while water samples contained more diversity at phylum level with Chytridiomycetes often prominent, particularly in summer. At a genus level, a very high relative abundance of Alternaria on leaves was observed in winter at all locations, in contrast to very low abundance of this genus across all water samples. Fungal community composition also varied between sampling locations (i.e., urbanization); in cluster analysis, samples from high urbanization locations formed a distinct cluster, with medium and low urbanization samples clustering together or in some instances, separately. Redundancy analysis shed further light on the relationships between variation in fungal community composition and water physico-chemical properties. Fungal community diversity variation and correlation with different parameters is discussed in detail, but overall, the influence of season outweighed that of urbanization. This study is significant in cataloguing the impact of urbanization on fungal diversity to inform future restoration of urban canal systems on the importance of protecting the natural aquatic fungal flora.