City of Launceston is the best-preserved nineteenth-century steamship wreck in Australia and, like the William Salthouse, is protected by a permit-only zone. She was an iron screw steamer of 368 tons, 60 m (197 ft) long, built by Blackwood and Gordon at Glasgow, launched on 4 April 1863 and delivered to the Launceston and Melbourne Steamship Company, arriving in Melbourne on 16 September 1863. For two years she carried passengers, mail and cargo across Bass Strait without incident.

At 7.20 pm on 19 November 1865 she left Port Melbourne under Captain William Thom with 23 crew and 25 passengers; at about 9 pm, in the middle of the bay, the steamer Penola struck her starboard side. Everyone was transferred to the Penola and the City of Launceston sank; the inquiry held her solely to blame. She settled upright into the soft silt in 21 m, and the silt saved her.

The hull is intact from keel to deck, the engine and boiler are in place, the bow of the Penola is still firmly embedded in her starboard side, and cabin fittings, passengers' luggage and cargo remain inside. Evidence of the extraordinary 1860s salvage attempts using patented Maquay hydrogen-gas lifting devices survives on the site. Since 2009 sacrificial zinc anodes have been fitted to slow corrosion.

Visibility is low and the current negligible, and the wreck is reached only on a shot at 14–22 m. Divers do not come for fish – though snapper, leatherjackets and bullseyes gather on the only structure for miles – but for the extraordinary sight of a complete 1860s steamer. Access is through Heritage Victoria permits for archaeological work and occasional supervised public dives; casual visits and anchoring within the 250 m zone are illegal.

For maritime archaeology enthusiasts it is the most important dive in Victoria; for everyone else it is a site to know about and respect.

Boat only and permit only. The wreck lies in the middle of the bay, roughly 12 km east of Portarlington, 15 km north of Sorrento and 20 km south-west of Mordialloc; the nearest ramps are Portarlington, St Leonards and Mordialloc/Patterson River, each 30–45 minutes away in a fast boat. Drive Melbourne–Portarlington via the Geelong Ring Road (about 1 h 30 min).

Anchoring is prohibited within 250 m of the wreck and diving requires a Heritage Victoria permit; the permitted dives that have been run (Heritage Victoria, the Maritime Archaeology Association of Victoria, occasional Dive Victoria heritage trips) use a pre-laid shot and live-boat.

Mid-bay with no swell and negligible current – the Scuba Doctor lists it as diveable on any tidal state – so weather is about wind and visibility. Strong winds from any quarter build a steep chop over 40 km of fetch that makes the long run and the shot-line descent unpleasant; calm days are needed. Visibility is typically low, 2–6 m, because the wreck sits in fine silt that lifts at a fin-kick and the central bay carries river turbidity for weeks after rain.

Winter and autumn after a dry fortnight are best. The long exposure at 20 m in 11–13 °C winter water argues for a drysuit.

Permitted dives only: descend the shot to the deck at about 17 m, circle the intact hull at deck level noting the Penola's bow embedded in the starboard side, the engine and boiler, cabin fittings and cargo, without entering or touching, then return to the shot and ascend. Neutral buoyancy is essential over the silt. 35 minutes at 18–21 m.

Permit only – Heritage Victoria grants permits for supervised archaeological and occasional public heritage dives (Maritime Archaeology Association of Victoria; Dive Victoria Group has run permitted trips). No charter schedules it.