Reservoir operation is a very important part of planning and management of water resources. An operating policy is developed to guide the operators at the reservoir site in deciding about the release at any time. The primary purpose of this study is to establish operating guide curves which include the probability of water shortage and water spillage by employing simulation techniques, for Megech reservoir. Megech reservoir is located in North Gonder zone of Amhara region, mainly intended to irrigate a gross command area of 7311ha to 14,622ha and Gonder city water supply. However, development of such multipurpose project should be supported with proper knowledge of water resources allocation and management, otherwise it will result in agricultural yield reduction and inefficient use of reserved water. This situation reveals that analysis of reservoir operation for the ongoing Megech irrigation and drinking water supply project is a serious issue that needs great attention, which is one of the principal reasons for this research work to be thought. Here, the simulation was performed based on three defined alternatives Alt-1, Alt-2 & Alt-3 that is 100%, 150% and 200% of the command area, respectively, which could be developed by the Megech River water resources. The input data for the analysis were: the inflows, the reservoir characteristics, irrigation, Gonder city and environmental water demands, and the reservoir water losses. The reservoir storage analysis was done based on 35 realization, each with 35 years length synthetically generated inflow data. The analysis revealed that the catchment, at the upstream of Megech dam could yield 234.7 Mm3 of water annually including rainfall on the reservoir. The outputs of the analysis were inflow-outflow of the reservoir system. Accordingly, the reservoir releases 118.9 Mm3, 148.2 Mm3 and 177.6 Mm3 for defined alternatives including environmental release and water losses. The useful storage capacity of the reservoir is 173.35 Mm3 and the average water losses via spilling is 207.1 Mm3 and 88.6 Mm3 per year for Alt-1 and Alt-2, respectively. The study also assessed the performance of the reservoir using R-R criteria and determined the reservoir safe yield using water balance equation. Based on the outputs, the study provided a reservoir operating guide curves (upper, lower and operating rule curves). The analysis result show that the available water source in the Megech watershed has sufficient capacity to develop the maximum irrigable land 7311ha and 10967ha with 99.99% and 94.9% reliability respectively