Lighthouse Bay lies below the historic Montague Island lighthouse. The Marine Life Network lists it at 16 m, sheltered from northerly winds, and names several features: the Grotto sea cave, swim-throughs, and rock formations called Cathedral Rock and Church Rock. It is a good all-round dive that shows off the island's topography without the depth or current of the northern sites.

The Grotto is a sea cave at the edge of the bay, with light entering and fish sheltering in the shadows. The swim-throughs are formed by large boulders typical of Montague's granite shoreline. Cathedral Rock and Church Rock are large rock formations rising from the bottom, with steep sides covered in sponges, sea squirts and encrusting algae. Fish include blue groper, red morwong, sweep, yellowtail, one-spot pullers, leatherjackets and eastern blue devilfish, and wobbegongs and Port Jackson sharks rest under ledges. Seals frequently visit from the colony, and turtles and tropical fish are sometimes seen in summer when the East Australian Current pushes south.

The moderate depth, sheltered position and variety of features suit Open Water divers, and the site is often used as the second dive after a seal or grey nurse dive. Keep clear of surge in the Grotto if there is any swell. Published details are limited to the Marine Life Network's short description, so the operator's briefing on the day is the best guide. The lighthouse above is an attraction in its own right and can be visited on NPWS-guided island tours, which run separately from the dive boats.

Boat access only. Narooma Charters leaves from the Narooma town wharf on Wagonga Inlet (about 25 minutes to the island) and Underwater Safaris from Narooma marina; private boats launch at the Apex Park or Bar Beach ramps inside the inlet. Every trip crosses the Narooma bar, one of the most dangerous on the NSW coast, so departures depend on bar conditions; Bermagui harbour (about 24 km by sea) is the fallback launch point.

Lighthouse Bay is used when northerly winds make the other side of the island rough; the boat anchors or drifts in the bay below the lighthouse.

Montague Island is about 9 km offshore and fully exposed, but with sites on all sides operators can usually find shelter from the wind of the day: the northern bays in southerlies, the western side in easterlies. The real limit is the Narooma bar, which closes in moderate easterly or southerly swell, especially on a run-out tide; McFadyen calls it probably the most dangerous bar in NSW. Trips are frequently delayed or cancelled, so allow spare days.

Currents are strong on the northern and eastern sides. The Marine Life Network notes that Lighthouse Bay gives shelter from northerly winds, which makes it a summer favourite when north-easterly sea breezes blow. It is exposed to southerly swell.

Descend in the bay and visit the Grotto sea cave and swim-throughs first, while gas is plentiful, then swim out to Cathedral Rock and Church Rock, circling them at 10–16 m. Return shallower along the bay's edge to the boat for the safety stop.

Dived by Underwater Safaris and Narooma Charters when northerlies blow; listed by the Marine Life Network.