The large tidal lake systems along the Southeast Australian coast are amongst the most vulnerable estuaries in Australia to the effects of sea level rise. In these lakes, reduced tide ranges compared with the ocean, in combination with modest flood extremes, have allowed development to occur in close vertical proximity to the current mean sea level. In this study, we examine water levels within Lake Macquarie, Australia’s most exposed estuary to sea level rise. We analyse water level data from the entrance channel and the lake to investigate recent changes to the frequency and duration of inundation or flooding of low-lying streets and examine the potential impacts of future rises in sea level. Our analysis shows that the numbers of days each year when water levels exceed those of low-lying streets, while subject to some variability, have increased significantly over recent decades. The increasing frequency of inundation is attributed to both mean sea level rise and an increase in tide range over the period of available data, which is thought to be associated with scour processes related to ongoing morphological adjustment to entrance training works undertaken over a century ago. Comparison of the projected behaviour of lake and open coast water levels under sea level rise shows the lake has significantly greater sensitivity to sea level rise. Projected inundation frequency for a given amount of sea level rise within the lake is double that of open coast sites, exposing infrastructure in the estuary to increasing risk of damage.