Rapid urbanization in Kandy, Sri Lanka, has intensified environmental challenges, particularly concerning the Urban Heat Island (UHI) effect, altering local temperature and rainfall patterns. This study examines these impacts between 2018 and 2023 through how urban expansion disrupts climatic equilibrium and accelerates socio-ecological vulnerabilities. Simultaneously, it aimed to quantify the UHI effect’s influence on Kandy’s climate, urbanization-driven environmental degradation, and proposed sustainable strategies to mitigate adverse impacts and to enhance urban development. The study used USGS Landsat 8 satellite data, various secondary sources and GIS for analysis. Study findings denoted that the mean temperature in Kandy increased from 29 ℃ in 2018 to 38 ℃ in 2023, whereas annual precipitation levels rose from 116.713 mm to 122.35 mm during the same period. Additionally, reduced vegetation cover and increased impervious surfaces adversely affected local temperature increments and disrupted precipitation patterns. Moreover, the city expansion is constrained by its circular layout and geographical limitations. Rapid urbanization (~1% population growth and 40% built-up area increment) has also led to environmental degradation. This leads to poor air quality, imbalances in land use, biodiversity loss, and strains on water resources. Socio-economic disparities have worsened, particularly affecting unplanned settlements. These findings emphasize the urgent need for sustainable urban development strategies in Kandy. Nature-based solutions such as expanding green infrastructure, increasing urban forests, and integrating permeable surfaces to reduce heat retention are proposed as solutions in this study. Additional recommendations include adopting climate-sensitive urban design, promoting renewable energy sources, and enforcing eco-friendly construction regulations. Adaptive land-use planning and sustainable water management practices are essential strategies. By prioritizing environmental conservation alongside equitable resource distribution, these measures aim to enhance urban livability while prompting resilience against future climatic challenges. This integrated approach is critical for ensuring a sustainable and inclusive future for Kandy’s growing population.