Abstract: Water source protection is pivotal to the success of water diversion projects, yet it imposes higher conservation standards on source areas, thereby inevitably constraining economic development. Quantifying the losses in development opportunities due to these protection measures is a big challenge in establishing ecological compensation standards for water source regions. This research introduced a novel approach to estimate the development opportunity losses stemming from water source protection restrictions by comparing the cumulative growth rates of per capita GDP. Shiyan City, located within the water source area of the South-to-North Water Transfer Project, was selected as a case study. By examining the disparity in the cumulative growth of per capita GDP between Shiyan City and Hubei Province from 2006 to 2019, the study calculated the development opportunity losses incurred by Shiyan City due to its water source protection obligations. The findings indicated that Shiyan City′s development opportunity losses initially increased and then plateaued, with an average annual fiscal revenue shortfall of approximately 569 million yuan attributed to the constraints of water source protection. Compared to prevalent methods such as direct per capita GDP comparison, the cumulative growth rate comparison method proposed herein offered a more accurate reflection of actual economic losses and enhanced practicality. This study aimed to provide valuable insights for the assessment of development opportunity losses and the development of ecological compensation frameworks in the water source protection zone and other analogous areas within the South-to-North Water Transfer Project.