Dugualla Bay is located on the northeast side of Whidbey Island within the western portion of Skagit Bay. Upstream of the bay, Dugualla Lake was historically a large estuary and salt marsh system that was connected to Dugualla Bay. To create agricultural land, a dike and tide gate system was constructed at the inlet to Dugualla Lake around 1918. This eliminated tidal inundation into the lake and changed Dugualla Lake into a freshwater lake and marsh.