Chilika Lake is an important habitat and breeding ground for both resident and migratory and aquatic birds, most notably flamingos. It is the largest wintering ground for migratory birds in the Indian subcontinent. Migratory birds arrive in October from as far away as Siberia, Iran, Iraq, Afghanistan and the Himalayas and generally stay until March. Part of the lake is protected by the Chilika Lake Bird Sanctuary, which harbors over 150 migratory and resident species of birds. The Nalaban Island within the lagoon is classified as a Bird Sanctuary under the wildlife protection act. The lake is also home to a diverse range of aquatic life, including 225 species of fish and the Irrawaddy dolphin (Orcaella Brevirostris). The rare limbless lizard barkudia insularis is endemic to one of the lake's small islands.

The larger islands lie between the sandbar and the lake, separated by shallow channels, and include Parikud, Phulbari, Berahpura, Nuapara, Nalbana, and Tampara. Some of the smaller islands are Breakfast Island, Honeymoon Island, Beacon Island, etc.