Soil erosion and the consequent sedimentation on the downstream water bodies are major watershed problems in many developing countries like Ethiopia. Soil erosion is often aggravated by unregulated land use land cover change and conversion to other land uses. This study was conducted with the aim of analyzing the land use land cover change and dynamics in the reservoir watersheds of the water supply reservoirs around Addis Ababa city. The study examined the land use land cover dynamics in the last three decades and quantified the spatio-temporal distribution of the rate of soil loss in the reservoir watersheds. The relationship between changes in land use land cover and the rate of soil erosion was also assessed. The results showed that cultivated land has been the most dominant land use land cover type covering 63.83%, 38.61% and 78.07% of the total in the Legedadi, Gefersa and Dire reservoir watersheds, respectively. As a result, higher rates of soil loss were recorded in the cultivated lands, which ranged from 179t/ha/yr at Gefersa to 404t/ha/yr at Dire reservoir watersheds. The mean annual soil loss for Legedadi and Dire increased from 3.93 to 21.74t/ha/yr and 18.10 to 77.15t/ha/yr, and for Gefersa in contrast mean annual soil loss decreased from 15.22 to 11.91t/ha/yr in 2016. The result also showed that those areas with vegetation cover did experience lower rates of soil loss than areas without vegetation. Hence, the existing and future water supply development projects should take into account of conducting an integrated land use planning and catchment management for the sustainable use of reservoirs as well as for the conservation of natural resources in the watersheds.