Regional agricultural projects based on water resource development have many potential impacts on social and natural environments. In this research, potential long-term environmental problems of the Southeastern Anatolian Project (GAP) related to water resources, land use, land degradation, agricultural pollution and demography are analysed from a systems perspective. The analysis focuses on the totality of environmental, social and economic issues. For this purpose, a system dynamics simulation model (GAPSIM) has been developed as an experimental platform for policy analysis. GAPSIM was validated, first 'structurally', using the tests suggested by the literature and then the model 'behaviour' was tested and calibrated with respect to available data. The reference behaviour of GAPSIM reveals that, as the irrigated lands are developed, GAP faces significant water scarcity because of the increased intensity of cotton, the crop with the highest demands for water. Simulation results also indicate that two key environmental factors, pesticide and fertilizer consumption may reach undesirable levels. Alternative irrigation water release strategies, development rates of irrigated fields and farm rotation practices appear as important policy tools in achieving long-term environmental sustainability. GAPSIM promises to be not only a useful laboratory for policy makers of GAP, but also a useful generic structure applicable to other similar regional development projects.