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Impact assessment of watershed development activity assumes greater importance in present day agriculture. Considering the ability of remote sensing technology in watershed monitoring and impact assessment, a study was carried out to investigate the Impact Assessment of Karnataka Watershed Development Project (DANIDA) in Koralahallihalla Sub watershed in Sindagi taluk of Bijapur district in Northern Karnataka using satellite data of two periods i.e., IRS 1 C, LISS-III data of 30 December, 1997 (pre-treatment) and IRS P6, LISS-III data of 17 December, 2004 (post-treatment). The land use/land cover map was derived from the supervised classification. The results revealed that there has been no major shift in cropping patterns over a period of 7 years (1997–2004). However, rabi cropped area has decreased drastically (187 ha), which might be due to the continuous droughts that occurred during the implementation period. On the other hand, kharif and double cropped area have increased marginally (103 ha and 96 ha, respectively). Increase in double cropped area showed that there was increase in irrigated land, which were earlier being used as rainfed and wastelands turned in to cultivated lands as seen in scrub lands and rabi cropped areas of the sub watershed. Wastelands in the sub-watershed has decreased marginally (36 ha). The vegetation vigour of the sub-watershed has been derived from the NDVI maps of both the periods. These NDVI maps indicate that there was a significant change in biomass status of the sub watershed. The vegetation vigour of the area was classified into three classes using NDVI. Substantial increase in the area under high and low biomass levels was observed (319 ha and 77 ha, respectively). The benefit-cost analysis indicates that the use of remote sensing technology was 2 times cheaper than the conventional methods. Thus, the repetitive coverage of the satellite data provides an excellent opportunity to monitor the land resources and evaluate the land cover changes through comparison of images for the watershed at different periods.