No-take marine reserves have been increasingly advocated as an effective means of supporting marine ecosystems and conserving fisheries resources. A major problem that can hinder the effectiveness of no-take reserves is the incidence of illegal fishing, which has created significant ecological and economic losses in global fisheries. We construct a bioeconomic model to explore the connection between the effects of notake reserves and illegal fishing activities in relation to the level of regulatory control of illegal activities in the reserve and fished areas. Our parameterised model shows that the effects of no-take reserves on both the extent of illegal fishing and the fish biomass critically depend on illegal fishing regulations and the scale and patterns of fish dispersal. In a fishery where illegal fishing can only be partially controlled, increasing the size of the no-take reserve may result in a lose-lose situation in which the level of illegal fishing effort increases and the total biomass decreases. Our results further show that when the pattern of fish dispersal is density dependent, imposing a stricter control on illegal fishing in either reserves or fished areas increases the aggregate level of illegal fishing.