The increasing anthropogenic pressure on natural environments results in impacts that affect tropical forest areas and their biodiversity. Adverse impacts on terrestrial and oceanic environments often compound in the intertidal area, where mangrove forest ecosystems thrive. In tropical coastal areas of many developing countries where people depend on wood and other mangrove forest products and services, forest degradation leads to socioeconomic problems. At the same time, increasing freshwater needs in these areas are expected to cause additional problems. On the basis of remote sensing and ground truthing complemented by colonial archival material from the Dutch East India Company (1602-1800), we report that changes to the historic system of inland freshwater management have increased dramatically in recent times. Hydrological changes, such as interbasin transfers, have resulted in a qualitative ecological and socioeconomic degradation in three coastal lagoons in southern Sri Lanka. Variations in river hydrology have caused changes in the areas suitable as mangrove habitat and, thus, have resulted in an altered distribution. However, increases in mangrove area can mask the degradation of the site in terms of floristic composition, significance of the species, and biodiversity (this effect is termed "cryptic ecological degradation"). It is important that such changes be carefully monitored to ensure biological and socioeconomic sustainability.