Improper practices of land use and land cover (LULC) including deforestation, expansion of agriculture and infrastructure development are deteriorating watershed conditions. Here, we have utilized remote sensing and GIS tools to study LULC dynamics using Cellular Automata (CA)–Markov model and predicted the future LULC scenario, in terms of magnitude and direction, based on past trend in a hydrological unit, Choudwar watershed, India. By analyzing the LULC pattern during 1972, 1990, 1999 and 2005 using satellite-derived maps, we observed that the biophysical and socio-economic drivers including residential/industrial development, road–rail and settlement proximity have influenced the spatial pattern of the watershed LULC, leading to an accretive linear growth of agricultural and settlement areas. The annual rate of increase from 1972 to 2004 in agriculture land, settlement was observed to be 181.96, 9.89 ha/year, respectively, while decrease in forest, wetland and marshy land were 91.22, 27.56 and 39.52 ha/year, respectively. Transition probability and transition area matrix derived using inputs of (i) residential/industrial development and (ii) proximity to transportation network as the major causes. The predicted LULC scenario for the year 2014, with reasonably good accuracy would provide useful inputs to the LULC planners for effective management of the watershed. The study is a maiden attempt that revealed agricultural expansion is the main driving force for loss of forest, wetland and marshy land in the Choudwar watershed and has the potential to continue in future. The forest in lower slopes has been converted to agricultural land and may soon take a call on forests occurring on higher slopes. Our study utilizes three time period changes to better account for the trend and the modelling exercise; thereby advocates for better agricultural practices with additional energy subsidy to arrest further forest loss and LULC alternations.