An artificial effluent lagoon for storing wastewater were excavated in Jiayuguan City since 1994. As a part of a demonstration projectof Sino-Australia cooperation, an assessment of the environmental impact of the lagoon was carried out. The assessment was based on field andlaboratory tests and predictive model. The main impacts from the lagoon site are likely to be on the groundwater system, and, to a lesser extent,on ambient air quality in the vicinity. Currently it is expected that groundwater is being polluted with effluent from the effluent lagoon. Airpollution(odor nuisance) is mainly caused by untreated effluent in the irrigation channel. The impact of high total dissolved salt(TDS) ongroundwater is likely to be significant in the long run if the lagoon is continuously used. There is, consequently, no likelihood of contaminationof surface water system, particularly of the city water supply system, from infiltration of effluent at the lagoon.