The municipality is confronted on the east and north by the municipality of Tavira, to the west by the municipality of Faro and in the south by the Atlantic Ocean. It is located within the morphological sub-regions of the Barrocal and coast. In the Barrocal, the municipality is limited in the north by the old massif and south with the sand-stones of the Mesozoic. These lines, follow an ancient beach and coast, justifying the existence of the sedimentary deposits (sand-stones) over the ancient massif. The coast, constituted by a sub-zone of more recent materials, Quaternary or Neogenic in age. These deposits came to rest over sand-stones and marls that comprise the coastal Mesocenozoic, a young relief, that is little accented, aided by a platform that includes superficial lavas.

All of the coastal littoral of the municipality belongs to the Nature Park of Ria Formosa, one of the more important humid zones in Europe, considered in 2004, by International Union for Conservation of Nature (IUCN) as a humid zone of world interest.

The Nature Park of Ria Formosa was instituted in 1987, by Decree Law 373/87 (9 September), with the objective of protecting and conserving this river system, and in particular the flora and fauna, including species of migratory bird and their habitats. The Nature Park extends into the municipalities of Loulé, Faro, Olhão, Tavira and Vila Real de Santo António, covering an area of 18400 hectares, for 60 kilometres (37 mi) along the coast, from Ancão until Manta Rota, covering a great variety of habitats: barrier islands, marshes, banks of mud and sand, dunes, salt marshes, freshwater ponds and brackish waterways, forests and agricultural areas.

In the municipality of Olhão, the island of Armona is included in the barrier islands of the Ria Formosa: this includes the beaches of Fuseta Mar and Armona Mar.