The land area of about 50 hectares (120 acres) is made up of three low-lying islands surrounding a shallow tidal 35-hectare (86-acre) lagoon connected to the sea by three narrow channels.

[1] Acting Lieutenant John Murray discovered the islands in February 1802 while surveying the Port Phillip shoreline.

[4] It forms part of the Port Phillip Bay (Western Shoreline) and Bellarine Peninsula Ramsar Site, which was designated in, as a wetland of international importance, and it is also included on the Register of the National Estate.

Seagrass meadows, sand dunes, mudflats and salt marshes support a diversity of life ranging from marine invertebrates to fish and birds.

Wind and tide are gradually changing the shape of the islands, although they are partly stabilised by a salt marsh of austral sea-blite and beaded and shrubby glasswort.

[5] Some 70 species of birds have been recorded on the Islands, which form essential breeding, feeding and roosting areas for seabirds and waders, many of them migratory.

Although there are fewer than at nearby South Channel Fort, nearly a quarter of the white-faced storm-petrels in Victoria breed on Mud Islands.

Other seabirds nesting on Mud Islands include nearly a thousand crested terns, one of the largest colonies in Victoria and the only one in Port Phillip.

Two resident waders, the pied oystercatcher and the red-capped plover, regularly breed on undisturbed parts of the islands.

Lewin's rail occasionally breeds in the salt marsh but is so shy that nesting is seldom recorded.