In recent years, groundwater pumping has increased for domestic, industrial, and irrigation use in the Modjo River catchment. Understanding changes in groundwater levels is crucial for the sustainable use and management of aquifer. This study investigates the groundwater flow system and aquifer response to increased groundwater pumping and reduced recharge using the calibrated steady-state groundwater level and budget as a baseline. The groundwater flow corresponds to the direction of the Modjo River flow, following the topographic gradient. The simulated groundwater budget indicates that recharge from precipitation and surface water (crater lakes and river) are the main inflow to the aquifer, while the outflow from the aquifer is due to groundwater pumping, natural subsurface flow to downstream area, and base flow. Analysis of the different scenarios reveals that both an increase in well pumping and a decline in recharge resulted in a decrease of the base flow to Bishoftu crater lakes and Mojo River, and to the downstream subsurface flow. In conclusion, increasing human demand for groundwater and variability in recharge will affect groundwater contribution to surface water and ultimately will be a source of concern in the future for both environmental flows and groundwater management.