The coast around Carvoeiro has some of the best diving in the Algarve, driven by the underwater rock formations — the same limestone arches and sea caves that make the coastline spectacular from above continue beneath the surface. Several dive centres operate from the town, offering reef dives, cave dives, and night dives.
The underwater cliff near Algar Seco drops to around 15 metres and supports a dense community of sea fans, moray eels, and octopus. The Cova do Peixe ("Fish Cave") is a popular site with a resident colony of conger eels. For snorkellers, the rock pools at Algar Seco at low tide are accessible without equipment and teem with marine life.