Diamond Lake is nestled under the eastern flanks of Mt Alfred about 15km north of Glenorchy and runs from the southern corner of the lake and flows for about 2km before entering Reid Lake. From the outlet of Reid Lake, Diamond Creek flows for another 4km where it joins Rees River.

The western shore of Diamond Lake is steep and bush-clad making it difficult to fish, however anglers can drift along this shore on a non-motorised boat. The lake has a few sloping shallow bays where brown trout can be found feeding. The lake is an important brown trout fishery with most fish weighing more than 1kg.