Hydrographic and current meter measurements were performed to determine the important physical processes in Beatrix Bay, an enclosed bay in Pelorus Sound, South Island, New Zealand over a 9‐month period. The water within the bay was highly variable in temperature, salinity, and density, but strongly stratified on all occasions, with the stratification approximating a two‐layer system. The stratification was usually dominated by salinity, but on one occasion, following a period of low rainfall, the stratification was dominated by temperature. A crude estimate of the residence time for the water in Pelorus Sound is calculated from the relaxation towards oceanic salinities during the dry period. The currents measured were largely tidal, and showed evidence of a strong internal tide as a result of the quasi‐two‐layer stratification. The tidal flows were larger than those predicted by a simple model.