The bay is located in Nares Strait, northwest of Judge Daly Promontory and is an inlet into the northeastern shore of Ellesmere Island.

Lady Franklin Bay is in a generally northeast to southwest direction, and as such it spreads inland about 110 km (70 mi) from Hall Basin.

The landscape surrounding Lady Franklin Bay is generally barren rocks, with some very shallow glacial till held in place with frost and permafrost.

The off-and-on icebound conditions are well known to exist in the sea during peak summer times as far as 320 km (200 mi) south of the Bay entrance.

In August 1881, a party of 25 military men led by First Lieutenant Adolphus Greely, as acting signal officer was successfully landed by the USS Proteus at Lady Franklin Bay to establish a meteorological-observation station as part of the First International Polar Year.