Penguin Island is located about 1.5 kilometres (0.93 miles) south of Beachport and about 120 metres (390 feet) south-east of the headland known as Cape Martin.

The latter outcrop came into existence in 1968 when a storm caused the collapse of a section of Cape Martin thereby creating a channel of about 40 metres (130 feet) in width between the remains of the headland and an isolated stack of remnant cliff now known as Inner Penguin Island.

[5] The island is composed of Bridgewater Formation calcareous sandstone which is a remnant of now partially submerged Robe Range which was formed during the Pleistocene.

[3][4] In 1977, an introduced species, marram grass was planted on the inner island to stabilise sand drift and to assist in the regeneration of native vegetation.

[7] In addition to being notable as being a breeding ground for seabirds, the island is also known as a site for the study of both the crested tern and the silver gull.

The same applies to the whole coast, which is shielded by a reef and a line of more or less large rocks that prevent any landing there (Baudin, in Cornell, 1974).