Land-use intensification across India in agriculture and forest lands has affected the surface and sub-surface sources of water that communities are finding it difficult to find alternate ways for accessing water from their surrounding ecosystems. Malaprabha sub-basin in the Krishna basin, has been going through gradual shifts from rainfed farming practices to water-intensive agricultural practices that is leading to severe depletion of both surface and ground water resources affecting drinking water supplies in downstream communities, let aside subsistence farming. Time-series analysis of remote sensed imageries carried out to map the areas of increased water utilization and the socio-economic conditions followed by scenario analysis of land-use changes through hydrologic modeling, indicate that the impacts of irrigation extraction on the hydrological regimes are severely affecting livelihoods of marginal communities. Our analysis of the situation in Malaprabha sub-basin using an integrated framework linking socio-economic conditions with biophysical interactions suggests that continued diversion of limited water resources in arid and semi-arid regions will continue to worsen drinking water supplies for lower catchments, such as Bailhongal town in Malprabha sub-basin where domestic water supplies are primary sources. Current patterns of irrigation and its increasing trends in dry regions are key issues policy makers have to address to prevent further depletion of agro-ecosystem functions, and to reverse the existing degradation of water resources.