Seepage from unlined irrigation canals is a significant source of groundwater recharge for shallow aquifers in many parts of the world, especially in arid and semi-arid regions such as Egypt. This is the case for Ismailia canal, the mostimportant branch canal of the River Nile in Egypt, which suffers seepage losses along its entire length (129.5 km). Groundwater modeling was performed using MODFLOW to determine the effect of lining of four sections of the canal, with a total length of 61 km on the water balance of the underlying unconsolidated porous-medium aquifer and to optimize the locations of the lined sections. The model was developed using existing hydrogeological data from the area and was calibrated using water table data for the period 2004–2013. The simulation results indicated that the optimum locations of lined sections to minimize the seepage losses are located at distances along the canal from 19 to 45 kms, from 70 to 93 km and from 109 to 117 km from the head regulator at km (0.00) near Cairo. The minimum seepage losses, in that case, is equal to 7.3% of the canal total discharge. The modeling also indicated that seepage from the unlined canal provides about 3.5 million m3/ day recharge to the underlying aquifer and these seepage losses represent about 21.6% of the canal total discharge. The optimum lining of the canal reduced the recharge to the aquifer by 65% (from 3,426,500 to 1,199,500 m3/ day. The discharge from the model. domain (outward the boundaries) and the added recharge to the aquifer storage reduced by 50% from about 4.0 million m3/ day to about 2.02 million m3/ day between 2016 and 2021.