Rapid conversion of conserved land and cropland to non-agricultural purposes is threatening the ecological areas and dominant agricultural activities that are the main sources of livelihood in urban fringe areas of Addis Ababa City. The combinations of government policy, socioeconomic, demographic dynamics, and biophysical triggers have driven such transformation. However, the recent fast urban expansion and infrastructural development could have accelerated the severity and rate at which urban growth impacts the ecosystem and fertile agricultural land. Yet, little attention is given about their impacts on forest and farming communities in the western fringe areas of Addis Ababa during the recent past. This study, therefore, aimed at quantifying and analyzing the trends of the urban growth and its impacts on flora and agricultural land in Sebeta-Awas town using an integrated GIS tool, remote sensing technique, and Shannon entropy method. Landsat TM of 1986, ETM+ of 2002, and OLI of 2019 were used to produce land use/land cover (LULC) classes. Object-based classification technique was carried out to generate the LULC and to measure the changes in the urban land-use class within the satellite town in the year 1986, 2002, and 2019. Shannon entropy method was applied to model study area’s urban sprawl, growth trend, and spatial change. Over the past three decades (1986–2019), Sebeta-Awas town has experienced severe urban sprawl following lack of proper development control and management. The annual urban growth rates of 1.2, 5.5, and ~15% for the periods of 1986, 2002, and 2019, respectively were obtained mainly at the expenses of agricultural land (25.48%) and forest land (16.6%), catalyzed urban sprawl which finally led to serious deforestation and reduction in rural farmland. The findings indicate that the average of entropy index increased from 0.02 in the year 1986 to 0.996 in the year 2019, indicating more dispersed urban growth to the outskirts, and spatially indicating anticlockwise shifting. In this regard, more than 90.2% of forest loss due to agricultural encroachment, built-up area expansion, and construction was widely observed in Sebeta and Alem Gena areas, of course, Northeast zone in this study. It is concluded that deforestation and continual evacuation of farming communities in the urban fringe areas due to rapid urban expansion in the name of investment and infrastructural development is expected to be worsened in the near future unless strong policy revision and management actions are undertaken.