The northeasterly long shore transport (littoral drift) along the east coast of India shifts the mouth of the lagoon northeastwards. It results in lengthening of the outer channel, reduced tidal flux, fall in salinity levels, weed infestation, decline in fishery resources, and overall loss of biodiversity and productivity. The Chilika Development Authority made an artificial mouth near the village of Sipakuda, which was opened on 23 September 2000. The present study focuses on applications of Resourcesat-1 LISS-III and AWiFS data to understand the impact of the new mouth opening on the morphology and water quality of the Chilika Lagoon. Digital image processing of multi-temporal Resourcesat-1 AWiFS, LISS-III, and IRS-1D LISS-III data was carried out. Changes were shown out for pre- and post-opening of the new mouth. The results indicate that the initial cut of 80 m has widened to approximately 676 m and, so far, the process has not attained stability. There has been northward erosion for approximately 376 m and southward erosion for approximately 143 m at the new mouth. The study shows that the strong ebbing tide current from the northwest is responsible for this erosion. The old mouth has been closed completely just three years after the opening of the new mouth. There has been an overall rise in salinity levels in the Chilika Lagoon, in particular during the pre-monsoon period following the opening of the new mouth. This indicates that the tidal flux in the lagoon has increased and the associated circulation is effective in mixing the water masses. After the opening of the new mouth, weeds have reduced by a 172-km2 area, in particular in the northeast part of the lagoon. AWiFS data is extremely useful in identifying changes in morphology and water quality under different tide conditions. Tidal conditions influence the signatures of turbidity, weed cover, shoals, and spits under development. The SWIR channel of AWiFS is found to be extremely useful for detecting aquatic vegetation. The study concludes that large transport of sediments at the new mouth opening, along with predominant erosion of the northern bank, suggests a northward migration of the new mouth in the near future.