Chilika Lagoon (19°28′–19°54′N, 85°06′–85°36′E), on the Orissa coast, India, is one of the world's unique ecospheres. It is the largest brackish water lagoon with estuarine character. Because of its rich biodiversity and socioeconomic importance, it was designated as a “Ramsar site”—a wetland of international importance—in 1981. Interest in detailed analysis of the circulation, biotic, and abiotic factors affecting the lagoon and its limnology is a result of the opening of the new mouth on 23 September 2000 to resolve the threat to its environment from various factors—eutrophication, weed proliferation, siltation, industrial pollution, and depletion of bioresources. This paper describes the development of a two-dimensional depth-averaged hydrodynamic model for Chilika Lagoon and the resulting simulation of currents and salinity corresponding to (i) the Southwest and Northeast monsoon seasons and (ii) pre- and post–mouth-opening conditions. Numerical experiments are performed to understand the different factors—wind, tides and freshwater influx—and their independent and collective roles. Comparison of results obtained with one or both of the openings is made to quantify and validate the changing salinity pattern, which has improved the productivity of the lagoon. Our study shows the salinity levels to be much lower during the southwest monsoon compared to the northeast monsoon, which is validated by observations. The decrease in salinity is attributed to more freshwater influx during the southwest monsoon. There is a significant increase (14%–66%, depending on the sector) in salinity after opening of the new mouth, the maximum change being observed in the channel that connects the lagoon to the sea. The constriction in the lagoon that blocks the tidal effects entering the lagoon is found to be responsible for maintaining the main body of the lagoon with low salinity. The dynamic model will be an important input for our on going work in seasonal study of the ecology of Chilika Lagoon.