Water scarcity in semi-arid closed-basin systems is increasingly driven by hydrological and land transformation processes. This study integrates multi-temporal remote sensing and physicochemical data to examine spatio-environmental drivers of surface water decline in Lake Manyara. Normalized Difference Water Index (NDWI) maps derived from dry-season Landsat imagery (July 2015 and July 2025) were used to quantify surface water dynamics, while supervised Maximum Likelihood land use/land cover (LULC) classification provided a characterized existing spatial context of the study area. Physicochemical parameters derived from recent field observations were evaluated using Carlson’s Trophic State Index (TSI). Results indicate a 31.7% reduction in dry-season surface water extent, from 232.4 km2 in 2015 to 158.7 km2 in 2025, accompanied by a marked spectral shift toward more negative NDWI values, reflecting extensive lakebed exposure. Agricultural expansion and bare land surfaces were spatially associated with stronger negative NDWI patterns (r ≈ −0.64, p < 0.05). Water quality assessment revealed extreme hypereutrophic conditions (TSI = 98.07), characterized by elevated phosphorus, nitrate, and chlorophyll-a, and high ionic concentrations. The findings demonstrate that hydrological contraction, eutrophication, and catchment land transformation are interconnected processes intensifying water scarcity in semi-arid lake systems.