In the northwestern Highlands of Ethiopia, a region characterized by diverse ecosystems, significant land use and land cover (LULC) changes have occurred due to a combination of environmental fragility and human pressures. The implications of these changes for ecosystem service values remain underexplored. This study quantifies the impact of LULC changes, with an emphasis on the expansion of plantation forests, on ecosystem service values in monetary terms to promote sustainable land management practices. Using Landsat images and the Random Forest algorithm in R, LULC patterns from 1985 to 2020 were analyzed, with the ecosystem service values estimated using locally adapted coefficients. The Random Forest classification demonstrated a high accuracy, with values of 0.97, 0.98, 0.96, and 0.97 for the LULC maps of 1985, 2000, 2015, and 2020, respectively. Croplands consistently dominated the landscape, accounting for 53.66% of the area in 1985, peaking at 67.35% in 2000, and then declining to 52.86% by 2020. Grasslands, initially the second-largest category, significantly decreased, while wetlands diminished from 14.38% in 1985 to 1.87% by 2020. Conversely, plantation forests, particularly Acacia decurrens, expanded from 0.4% of the area in 2000 to 28.13% by 2020, becoming the second-largest land cover type. The total ecosystem service value in the district declined from USD 219.52 million in 1985 to USD 39.23 million in 2020, primarily due to wetland degradation. However, plantation forests contributed USD 17.37 million in 2020, highlighting their significant role in restoring ecosystem services, particularly in erosion control, soil formation, nutrient recycling, climate regulation, and habitat provision. This study underscores the need for sustainable land management practices, including wetland restoration and sustainable plantation forestry, to enhance ecosystem services and ensure long-term ecological and economic sustainability.