Phosphorus pollution from excessive litter application and municipal discharges causes eutorphication of lakes in the Eucha-Spavinaw watershed in eastern Oklahoma and western Arkansas. Consequent algae blooms impair the taste of drinking water supply drawn from the watershed and reduce the recreational values of the lakes. The paper shows how GIS data based biophysical modeling can be used to derive spatially optimal, least-cost allocation of agricultural management practices to be combined with optimal wastewater treatment activity from the point source in order to achieve socially optimal phosphorus load in the watershed. The optimal level of phosphorus load is determined by equating marginal abatement with marginal damage cost. Transportation activities in the model allow for transportation of litter within and out of the watershed. Results show uniform regulation of litter application is excessively costly relative to measures that encourage adoption of management practices that equate marginal abatement costs across pollution sources. The results also show that change in the land use patterns in a long-run and using alum based litter additives in short-run are economically efficient management options.