Located in the City of Lake Macquarie and Central Coast Council local government areas in the Hunter and Central Coast regions of New South Wales, Australia, it covers an area of 110 square kilometres (42.5 sq mi) and is connected to the Tasman Sea by a short channel.

Lake Macquarie is twice as large as Sydney Harbour and is the largest coastal salt water lagoon in the Southern Hemisphere.

[4] Lake Macquarie was first encountered by Europeans, in July 1800, by Captain William Reid, who had been tasked with obtaining a cargo of coal from the outcropping seams on the southern side of the Hunter River.

Mistaking Moon Island for Nobby's and the entrance to Lake Macquarie at Swansea Heads for the mouth of the Hunter River, he obtained his cargo of coal from a seam outcropping in the southern headland at the lagoon's entrance—a headland since known as ‘Reid’s Mistake’—and so accidentally revealed to the settlers both the lagoon and the coastal coalfields of the area.

The remnant and fragmented eucalypt forests on the southern margins of the lagoon have been identified by BirdLife International as a 121 km2 Important Bird Area (IBA) because they support significant numbers of endangered swift parrots and regent honeyeaters in years when the swamp mahoganies and other favoured trees are flowering.

Local efforts have been made to remove and control weeds species such as Bitou bush, Lantana and Wandering Jew.

The final report of this investigation, known as "The Environmental Audit of Lake Macquarie", identified the primary causes of concern, highlighting the major problems of sedimentation and nutrient enrichment.

[13] In 1998, the then NSW Premier, Bob Carr, announced the formation of a task force under the chairmanship of Clean Up Australia founder, Ian Kiernan.

The report of the task force, known as the "Integrated Estuary and Catchment Management Framework" was accepted by the NSW State Cabinet in February 1999.

The report recommended a unique institutional arrangement for implementation through the creation of the Office of the Lake Macquarie and Catchment Coordinator.

The Committee would consist of representatives of both councils; community; regional directors of relevant government departments and three ex-officio members.

The lagoon body generally has low nutrient concentrations, good water clarity and excellent dissolved oxygen levels.

These activities include the construction of wetlands, the installation of stormwater treatment devices, bush regeneration and an increased awareness by the local community.