Sri Lanka is an island nation where similar to 59% of the population live in coastal regions. The main income source in these areas is fishing, which contributes to similar to 44% of the national GDP. Fishery resources depend on mangroves, especially in estuaries and lagoons, as mangroves provide the best nursery grounds for both brackish and marine species that are significant for the island's fishing industry. However, growing pressures from an increasing population and development are causing substantial damage to mangroves resulting in loss of mangrove diversity. We analyzed whether variation in mangrove diversity within a lagoon system affects fishery production and livelihoods. Along the lagoon we selected three sites, which were 5 km apart from each other, for the survey. We used three 50 m long transects at each site for faunal and floral diversity assessments. The fishery catch was recorded from three crafts in each side. The socio-economic survey was conducted in 30 households per site using a standard questionnaire. In the site with the highest floral and faunal diversity, we also recorded the highest fish catch, but not the highest crab or shrimp catches. Our results confirm that higher mangrove diversityand not just areasupports higher income generation. Thus, future development should prioritize biodiversity conservation in coastal regions.