Coastal wetlands play a crucial role in sustaining both biodiversity and livelihoods, yet many are under severe ecological and socio-economic stress. Chilika Lagoon, Asia’s largest brackish water ecosystem, illustrates the delicate balance between blue carbon ecosystems (BCEs), small-scale fisheries (SSFs), and water quality. However, illegal shrimp farming, pollution, habitat degradation, and climate-induced disruptions are threatening both the lagoon’s ecological integrity and the resilience of dependent communities. This research employs qualitative and quantitative approaches—including surveys, participatory mapping, and community interviews—to assess the impacts of seagrass and mangrove loss, water quality deterioration, and governance challenges on SSFs. Findings reveal that declining fish stocks, rising cyclone vulnerability, and economic hardships are linked to wetland degradation. Restoring 60% seagrass, enforcing fishing regulations, and scaling up cyclone resilience programs emerge as key strategies to ensure sustainability. This study highlights how integrated conservation, adaptive governance, and community engagement can transform Chilika from vulnerability to viability, demonstrating the potential of coastal wetlands to support both life below water and resilient livelihoods above it.