The urbanization process has led to the steady growth of cityat the expense of peri-urban natural environment. This study was conducted in the Nekemte city, Oromia Region at Western part of Ethiopia. The research was aimed to assess the effects of urban land use/ cover dynamics on natural environment through the interpretation of three years’ time series images and psycho-chemical analysis of surface water quality of the study site. Land use classification maps were developed by using geos patial methods, remote sensing and Geographic Information System (GIS). Study area land use/ cover mapping and change detection analysis was conducted by Arc-GIS software. Urban land use and cover dynamic analysis revealed that built-up areas have been increased during 1996 to 2016 resulting in substantial reduction of forest area, cultivated land, grazing land, wetland and riparian forest. Forest and wetland, which are the focuses of this research, have been continuously decreased from 17%, and 14% in 1996 to 5.1% and 2.7% in 2016, respectively, with an average annual urban growth rate of 3.65% within 20 years, resulted in an increased mean annual local temperature, variability of rainfall and relative humidity and surface water quality reduction. Projected values indicated that built up areas will be increased continuously for the coming 10 years. Continuous conversion of forest, wetl and land and other land cover type to urban land had resulted into varied and extensive natural ecosystem disturbances; local climate change biodiversity loss and surface water quality reduction. Population growth, migration and economic development are the main identified factors contributing for urban land expansion. Impacts of urban expansion on peri-urban environment can be reduced through controlling population growth and incorporating environmental issues in any urban and economic development program.