In order to assess the current ecological status of the tidal Thi Vai Estuary and the Can Gio Mangrove Forest in Southern Vietnam, we evaluated the spatial diatom composition and abundance in surface sediments and their relation to physical and chemical parameters of the water. Major changes in the distribution of diatom assemblages were determined by multivariate statistical analyses. Principal component analysis (PCA) was used to ordinate environmental variables of the water, showing a clear gradient along the estuary, with higher nutrient levels (total phosphorus and total nitrogen) and lower dissolved oxygen (DO) concentrations at upstream sites. Canonical correspondence analysis (CCA) was used to determine the species-environmental relationship. Total phosphorus (TP) and DO (p < 0.001) as well as salinity and pH (p < 0.002) were the most significant variables related to diatom composition. The neritic planktonic species Thalassionema nitzschioides (Grunow) Mereschkowsky was the most widespread and abundant species in the data set, presumably also reflecting significant influence of oceanic water. Thalassiosira cedarkeyensis Prasad, a marine benthic species, was the second most abundant species and seems to be related to higher nutrient levels, particularly at upstream sites. High abundances of Cyclotella meneghiniana Kutzing and Cyclotella atomus Hustedt were also recorded upstream sites. Their association to high TP levels and lower DO concentrations suggests deterioration of water quality. This study shows the potential of diatoms as indicators of environmental change even in dynamic systems such as estuaries.