Land use changes are a key factor for altering hydrological response, and understanding its impacts can help to develop a sustainable and pragmatic strategy in order to preserve a watershed. The objective of this research is to estimate the impact of land use changes on Bagmati river discharge and sediment yield at the Khokana gauging station of the Kathmandu valley outlet. This study analyzes the impact of land use changes from the year 2000 to 2010 using a semi-distributed hydrological, Soil Water Assessment Tool (SWAT) model. The Load Estimator (LOADEST) simulates sediment loads on limited available sediment data. Sensitivity analysis is performed using the ParaSole (Parameter Solution) method within SWAT Calibration and Uncertainty Procedure (SWAT-CUP), which shows that Linear parameters for calculating the maximum amount of sediment that can be re-entrained during channel sediment routing is a most sensitive parameter that affect the hydrological response of the watershed. Monthly discharge and sediment data from 1995 to 2002 are used for calibration and remaining monthly discharge and sediment data from 2003 to 2010 are used for validation. Four statistical parameters including the Coefficient of Determination (R2), Nash–Sutcliffe Efficiency (NSE), RMSE-observations’ standard deviation ratio (RSR), and Percentage Bias (PBIAS) are estimated in order to evaluate the model performance. The results show a very good agreement between monthly measured and simulated discharge data as indicated by R2 = 0.88, NSE = 0.90, RSR = 0.34, and PBIAS = 0.03. The model shows nearly the same performance also with sediment data. The land use change data shows about a 6% increase in built-up areas from the years 2000 to 2010, whereas the remaining areas such as Forest, Shrub, Grass, Agriculture, Open Field, and Rivers/Lakes are decreased. The surface runoff contribution to stream flow and sediment yields are increased by 27% and 5% respectively. In the contrary, lateral flow contribution to stream flow and groundwater contribution to stream flow are decreased by 25% and 21%, respectively.