Urban water systems are impacted by land use within their source watersheds, as it affects raw water quality and thus the costs of water treatment. However, global estimates of the effect of land cover change on urban water-treatment costs have been hampered by a lack of global information on urban source watersheds. Here, we use a unique map of the urban source watersheds for 309 large cities (population > 750,000), combined with long-term data on anthropogenic land-use change in their source watersheds and data on water-treatment costs. We show that anthropogenic activity is highly correlated with sediment and nutrient pollution levels, which is in turn highly correlated with treatment costs. Over our study period (1900–2005), median population density has increased by a factor of 5.4 in urban source watersheds, whereas ranching and cropland use have increased by a factor of 3.4 and 2.0, respectively. Nearly all (90%) of urban source watersheds have had some level of watershed degradation, with the average pollutant yield of urban source watersheds increasing by 40% for sediment, 47% for phosphorus, and 119% for nitrogen. We estimate the degradation of watersheds over our study period has impacted treatment costs for 29% of cities globally, with operation and maintenance costs for impacted cities increasing on average by 53 ± 5% and replacement capital costs increasing by 44 ± 14%. We discuss why this widespread degradation might be occurring, and strategies cities have used to slow natural land cover loss.