Nullah Aik and Nullah Palkhu are major tributaries of River Chenab in Pakistan and important water resources in district Sialkot. These streams receive industrial effluents, municipal sewage from Sialkot City, which degrade the water quality and disrupt the ecological integrity. Present study was designed to highlight the effects of human activities on water quality and fish fauna of these streams. For this purpose, water samples and fish samples were collected at 18 sampling sites on seasonal basis from September 2004 to July 2006. Water samples were analyzed for 38 parameters. Hierarchical Agglomerative Cluster Analysis (HACA) identified three different classes of sites: relatively unimpaired, impaired and less impaired regions on the basis of variations in water quality parameters. Discriminant Function Analysis (DFA) identified 11 water quality parameters viz; stream flow, stream depth, DO, COD, TDS, NO 3- , PO 43- , Pb(dis), Cr(dis), Mg(sus), and Ni(sus), which showed significant spatial variations, whereas, major seasonal variations were observed in stream flow, temperature, EC, salinity, total hardness, Na(dis), K(dis), Ca(dis), Mg(dis), Fe(dis), Cd(dis), Cu(dis) and Na(sus). Factor Analysis (FA) identified the six sources of contamination such as municipal waste, industrial effluents, tanneries effluents, agricultural, urban runoff and parent rock material. COD, TDS, Fe (dis), Pb (dis), Cd (dis), Cr (dis) and Ni (dis) were found to be higher than the permissible limits. Seven heavy metals (Fe, Pb, Cd, Cr, Ni, Cu and Zn) were analysed in different organs (liver, gills, kidneys and muscles) of eight fish species. Significant variations in heavy metals accumulation were observed in organs of studied fish species. The concentration of Pb and Cr was recorded significantly between fishes captured from different sampling zones, whereas, Fe, Cd, Cr and Cu in fishes varied significantly between post monsoon and pre monsoon. The muscles of Channa punctata, Labeo rohita, Cirrhinus reba, Puntius sophore and Wallago attu captured from downstream of Nullah Aik and Nullah Palkhu exceeded the international permissible limits of Pb, Cd and Cr. A total of 24 fish species belonging to 12 families were recorded from Nullah Aik and Nullah Palkhu. Highest diversity indices were calculated at upstream of Nullah and downstream of Nullah Aik. Fish assemblage at upstream of Nullah Aik was stable, whereas, other stream segments showed seasonal variations. CCA identified the three groups of fishes viz., sensitive species, ubiquitous species and tolerant species, which were grouped on the basis of related to stream flow, stream depth, DO, COD, salinity, turbidity, NO 3- and heavy metals. Biological Integrity index xii(IBI) was developed for the assessment of stream ecosystem degradation. A total of 12 metrics were calculated on the basis of taxonomic richness, habitat preference, trophic guild, stress tolerance and origin of species to develop stepped and continuous IBI criteria. HACA segregated the sites based on species abundance into three groups viz., reference, moderately impaired and impaired groups. Non-Metric Multidimensional Scaling (NMDS) was applied to identify underlying ecological gradient to highlight the habitat degradation. Sites located in upstream of Nullah Aik showed higher IBI scores, which dropped to its lowest in downstream sites near Sialkot city, which gradually improve far downstream. Spatial variability in IBI values is related as a function of surface water quality degradation. The results indicate that water quality and fish fauna of these streams are facing severe degradation due to unwise anthropogenic in the catchment area. The findings of present study are alarming and highlight that there is an urgent need to protect the natural streams from further degradation. These results can be helpful for future management of other polluted streams and small rivers in the same eco-region.