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Uruguay is facing increasing pressure on its water resources due to a strong dependence on agricultural production and a rising frequency of droughts. These trends intensify competition between agricultural water use and environmental water requirements, highlighting the need for adaptive strategies that ensure both ecosystem integrity and agricultural productivity. Irrigated agriculture relies on on-farm, gravity-fed systems in which water is supplied from reservoirs and distributed through open channel networks. Although effective at the field scale, this traditional approach creates challenges for water allocation control, monitoring, and basin-scale planning due to the large number of small reservoirs and users. In addition, it largely overlooks land use planning, as irrigation development tends to follow water availability rather than optimising the use of high-quality soils or avoiding areas with a high risk of nutrient runoff. In this context, the study examines the sustainable intensification of irrigated agriculture in the Arapey Basin (northern Uruguay). The basin covers approximately 11,400 km² and contains extensive agricultural lands with high potential for crops such as rice, maize, and improved pastures. The Soil and Water Assessment Tool (SWAT) model, calibrated and validated against long-term streamflow records (30 years), was implemented to represent current and future water management scenarios, including the design of irrigation districts, reservoir operations, and their impacts on streamflow, nutrient transport, and agricultural production. The analysis includes the potential expansion of the reservoir system by seven new reservoirs, increasing total basin storage from 50 hm3 to 280 hm3 across 13 reservoirs. Simulation results indicate that coordinated reservoir development and controlled water releases could support the expansion of irrigated agriculture while mitigating the effects of drought in the main river. Additionally, regulated reservoir operations and strategically located irrigation districts may help dilute downstream nutrient concentrations. However, the results also highlight the need for good management practices at the field scale to prevent local nutrient accumulation and degradation of water quality. The findings suggest that a basin-scale approach to irrigation development, combining expanded reservoir storage with careful management, can enable sustainable agricultural intensification in northern Uruguay while simultaneously enhancing water governance and protecting environmental resources.