Sinnakarachchi Lagoon has two separate major arms, covering 780 hectares altogether. The main part behind Nilaveli Beaches stretches 9.5 km to the south in a slightly curved way. An even more curved northern arm stretches 5 km inland. The calm lagoon, which is connected with the ocean only by a small natural canal, is used as a sheltered anchorage for fishing boats.
With a maximum depth of 2 m, Sinnakaracchi Lagoon is fairly shallow and its water is more than brackish, actually it is categorized hypersaline. At several places along the lagoon's shores, crystallization of salt can occur during the dry season naturally. However, due to ist high salinity, salt pans for salt production were developed additionally, similar to those in Puttalam Lagoon at the west coast. Nilaveli Beach holiday makers interested in seeing salines, however, should travel 2 km further north to Periyakarachchi Lagoon near Vallipunam, where more salt pans can be seen, very close to the main road to Pulmoddai (B 424).
Due to ist mangrove swamps, seagrass beds and inter-tidal mudflats, Sinnakarachchi Lagoon is an important natural habitat of Sri Lanka's Eastern Province, particularly for waterbirds. However, the eco-system is threatend by the development of new aquaculture, whereas small subsistence fishery is the traditional way of using the lagoon. Wild elephants are known to frequent the area to the west of Sinnakarachchi Lagoon.