The study forms an example on monitoring and understanding urban dynamics by using remotely sensed data. The selected region is a rapidly urbanizing district of the mega city Istanbul, Gaziosmanpasa, whose population has almost doubled between years 1990 and 2000. The significance of this district besides its urban sprawl is that 61% of its land lies within the boundaries of an important drinking water reservoir watershed of the mega city, the Alibeykoy Reservoir. The land-use/cover changes that has occurred in the years of 1987 and 2001 are analyzed by utilizing a variety of data sources including satellite images (Landsat TM image of September 1987 and Landsat ETM+ image of May 2001), aerial photographs, orthophoto maps, standard 1:25000 scale topographic maps, and various thematic maps together with ground survey. Land-use changes are analyzed on the basis of protection zones of the reservoir watershed and the conversion of bare land and forests to settlements are clearly observed despite the national regulation on watershed protection. The decline of forests within the protection zones was from 69% to 63.6% whereas the increase in settlements was from 0.8% to 3.9%. The associated impact of establishing new residential sites with insufficient infrastructure is then linked with the water quality of the reservoir that has already reached to Class III characteristics regarding the recently revised national legislation stating that any class exceeding Class II cannot be used as a drinking water supply that in turn, had consequences on regulating the water services such as upgrading the existing water treatment plant. The paper aims to help the managers, decision-makers and urban planners by informing them of the past and current land-use/cover changes, to influence the cessation of illegal urbanization through suitable decision-making and environmental policy that adhere to sustainable resource use.