Abstract: Land surface water and heat fluxes are the main factors affecting local microclimate. In order to evaluate the impact of agricultural and forest economical development of the upper reaches of Lijiang river on environment, the fluxes were retrieved with improved SEBAL model from five TM/ETM images of the upper reaches of Lijiang river during 1989 to 2006 by computation of surface solar radiation in complex hilly topography. Normalized water and heat fluxes were proposed so that they could be compared between different temporal domains. Results showed that while vegetation coverage increased, sensible heat flux(H) decreased and latent heat flux(LE) increased. The influence was very obvious while vegetation coverage ranged from 0.2 to 0.7. Average vegetation coverage decreased sharply from 1989 to 1991, and increased gradually from 2000 to 2006. It respectively resulted in great enhancement and then gradually fall in average Bowen ratio (ratio of H to LE) and in pixels with higher normalized sensible heat flux, as well as proportional fall and then rise in pixels with higher normalized latent heat flux. Although average vegetation coverage in 2006 approached that in 1989, average Bowen ratio was still greater than that in 1989. The enhancement of average ratio of sensible heat flux to latent heat flux results from the increase of economical forests and agricultural dry land, the decrease of broadleaf forest coverage, and the shrinkage and degradation of water source forest in the study area.