Valuation of ecosystem services along with the perceptions and attitudes of local communities is crucial for sustainable management of wetlands. This study assesses changes in wetland area and bathymetry, and provides insights into local community's perceptions of ecosystem services, and attitudes towards wetland conservation in Kashmir Himalaya, India. High-resolution satellite data was used to assess land use land cover (LULC) changes within the wetland. The bathymetry changes were assessed by performing depth measurements before and after dredging in 2019 and 2022, respectively. Perceptions of ecosystem services and attitudes of residents towards wetland management were examined through surveys in 182 households from the target population of 334 families. The findings reveal that Khushalsar wetland provides important provisioning (food, fodder, thatching mats, fish, vegetables), regulating (flood control, carbon sequestration, water quality improvement), supporting (habitat, biomass and oxygen production, water and nutrient cycling), and cultural services (aesthetic, education, spiritual). The economic benefits from provisioning services range from 240 USD/yr for minor vegetables to 1201–1802 USD/0.05 ha/yr for Nelumbo nucifera. The analysis of LULC changes indicates a ∼16.5% reduction in wetland area from 1980 to 2017, with a further ∼10% decrease from 2017 to 2021, resulting in an overall loss of ∼25% (27.1 ha) in wetland area from 1980 to 2021. Bathymetric assessments reveal an increase in maximum depth from 427 cm in 2019 to 547 cm in 2022 following dredging activities. Socioeconomic analysis showed the significance of Khushalsar wetland as an important source of livelihood for local communities. Survey results indicate that all the respondents have positive attitudes towards the protection and management of the Khushalsar wetland. The study demonstrates that human conservation activities have significantly contributed to positive changes in the wetland such as increase in depth and flood storage capacity. The study concludes that government protection along with active participation of local communities is indispensable for sustainable management of wetlands.