The bay is located on the Pacific Ocean coast of northwestern Orange County next to Seal Beach and is split into several distinct but interconnected parts.

Los Alamitos Army Airfield and Naval Weapons Station Seal Beach are located adjacent to each other on the north and north-east sides of the bay, respectively.

In the early 21st century the bay's original outlet was re-established, restoring full tidal influence in order to benefit the local ecosystem.

[8][9] The San Gabriel River, which drains an extensive watershed in both Orange and Los Angeles Counties, empties into the sea less than a mile (1.6 km) to the west of Anaheim Bay.

Anaheim Bay is located at the mouth of Sunset Gap, one of the many breaks in the low hills and mesas that make up the Orange County coast.

The gaps were formed by erosion about 40,000 years ago during the previous Ice Age, when the sea level was lower and rivers entrenched valleys into the coastal plain.

Before urbanization in the 20th century, which largely confined these streams to concrete flood control channels, they frequently changed course and filled the coastal bays with varying amounts of alluvial sediment.

Sheltered by a long chain of natural barrier beaches and hills, the marshes were a vast complex of ponds, streams and bogs interspersed with meadows and riparian forests.

Anaheim and Bolsa Chica bays were separate bodies of water at the time with distinct ocean outlets; they were not linked until the creation of a man-made channel in 1899.

[7][14][15] As one of the few safe natural anchorages along the Southern California coast, Anaheim Bay has been an important strategic position in Orange County since at least the mid-1800s.

They constructed dikes to create freshwater ponds; the resultant change in currents caused the natural outlet of Bolsa Chica Bay to become blocked by sediment.

[18] A modernization project began in 2019 that included dredging the turning basin in order to accommodate amphibious assault ships that are currently resupplied by helicopters off Marine Corps Air Station Camp Pendleton.

[19] The U.S. Environmental Protection Agency lists Anaheim Bay as an impaired waterbody, with high concentrations of dieldrin, nickel, PCBs and sediment toxicity.