Blue Lagoon is a small but popular beachside destination enclosed within a secluded bay just before Cape Rachado, about 17km south of PD town. Sheltered by a dense cover of lush vegetation and forests from surrounding foothills, the Blue Lagoon enjoys an inherent tranquility missing from other beaches in Port Dickson, even with many visitors around. Because of its proximity to the Tanjung Tuan Forest Reserve, wildlife sightings are common, including migratory birds, squirrels and monkeys. PNB Ilham Resort is nestled directly along Blue Lagoon, but Casa Rachado and Permaisuri Resort are two other hotels in the vicinity providing budget family accommodation.
The sea waters here are calm and particularly shallow, a result of the bay's naturally deep recess and sandbanks that protect the Blue Lagoon from strong tides and currents. At night, beams of light can be seen emanating in circles from the lighthouse at the hilltop of Cape Rachado, while visitors camp and fish from the beachside. During the day, the shallow waters and sandbanks prevent most water sport activities from being carried close to shore, which thankfully limits the number of jet skis and motor boats dramatically. At these distances, the sea contains small coral reefs, which sometimes attract scuba divers. Numerous mudflats and sandbanks also reveal themselves along the beach, isolating the immediate sea into shallow pools of water in which children take special delight.