Mermaid Lagoon is surrounded on three sides by cliffs with many ferns and plants on them, but one side goes out onto the sea. On this side there is also a stone archway, on the other side of which you are faced by the open sea and "out" of the lagoon. There is a gathering of rocks in the middle of Mermaid Lagoon, on which the mermaids inhabiting the Lagoon like to sunbathe and spend their time out of the water. Though mermaids are the only known beings living in Mermaid Lagoon other than fish and other sea creatures, others do occasionally visit the lagoon - a frequent visitor is Peter Pan, who seems to enjoy the mermaids' attention and tells them stories of his heroic battles with Captain Hook.
A few fairies from Pixie Hollow have also come to Mermaid Lagoon in various Disney Fairies books. Rani has visited a few times, once in the book Rani in the Mermaid Lagoon, Fairy Dust and the Quest for the Egg, and Fairy Haven and the Quest for the Wand. Vidia and Prilla were also with her in Fairy Dust and the Quest for the Egg.
Never Mermaids (known only as Mermaids) and even mermen are human/fish-hybrids who live in the lagoon. They enjoy the company of Peter Pan but seem malevolent towards everybody else, including the fairies, and show a particular dislike of Wendy, who is Peter's "special" female interest. They are hedonistic, frivolous and arrogant; they "sing" and play the "mermaid games" all day, like blowing bubbles, and they "love to bask out on Marooners' Rock, combing their hair in a lazy way". Wendy is enchanted by their beauty, but finds them offensive and irritating, as they would "splash her with their tails, not accidentally, but intentionally" when she attempted to steal a closer look. They occupy rock-pools and the ocean surrounding Marooners' Rock, and their homes are "coral caves underneath the waves" to which they retire at sunset and rising tide, as well as in anticipation of storms.