Abstract. Ecosystems in shallow micro-tidal lagoons are particularly sensitive to hydrologic changes. Lagoons are complex transitional ecosystems between land and sea, and the signals of direct human disturbance can be confounded by variability of the climate system, but from an effective estuary management perspective, the effects of climate versus direct human engineering interventions need to be identified separately. This study developed a 3D finite-volume hydrodynamic model to assess changes in hydrodynamics of the Peel–Harvey Estuary, a large shallow lagoon with restricted connection with ocean; this was done by considering how attributes such as water retention time, salinity and stratification have responded to a range of factors, focusing on the drying climate trend and the opening of a large artificial channel over the period from 1970 to 2016, and how they will evolve under current climate projections. The results show that the introduction of the artificial channel has fundamentally modified the flushing and mixing within the lagoon, and the drying climate has changed the hydrology by comparable magnitudes to that of the opening of the artificial channel. The results also highlight the complexity of their interacting impacts. Firstly, the artificial channel successfully improved the estuary flushing by reducing average water ages by 20–110 d, while in contrast the reduced precipitation and catchment inflow had a gradual opposite effect on the water ages; during the wet season this has almost counteracted the reduction brought about by the channel. Secondly, the drying climate caused an increase in the salinity of the lagoon by 10–30 PSU (Practical Salinity Unit); whilst the artificial channel increased the salinity during the wet season, it has reduced the likelihood of hypersalinity (>40 PSU) during the dry season in some areas. The opening of the artificial channel was also shown to increase the seawater fluxes and salinity stratification, while the drying climate acted to reduce the salinity stratification in the main body of the estuary. The impacts also varied spatially in this large lagoon. The southern estuary, which has the least connection with the ocean through the natural channel, is the most sensitive to climate change and the opening of the artificial channel. The projected future drying climate is shown to slightly increase the retention time and salinity in the lagoon and increase the hypersalinity risk in the rivers. The significance of these changes for nutrient retention and estuary ecology are discussed, highlighting the importance of these factors when setting up monitoring programmes, environmental flow strategies and nutrient load reduction targets.