The Secret Lagoon was a hidden lake on Lucre Island.
On a small peninsula jutting out onto the lake was an underground passage leading to Pegnose Pete's Viewing Gallery, full of kitsch decor. From this gallery one can look out onto the lagoon bed via a large viewing glass window. From here Guybrush Threepwood saw the stolen Marley heirlooms as well as the stolen Lucre Bank treasures stashed in an underground cave which can be reached by diving into the Lagoon (Guybrush can only find the entrance to the secret cave with the help of some very phosphorescent fish and some very stale bait).
The location of the lagoon is hidden and Guybrush can get to it after rigging Ozzie Mandrill's cane and bluffing his way into making Ozzie go and check out the stash of loot, thus enabling Guybrush to follow him .
This very typical Threepwood tactic echoes other instances in the Monkey Island saga, such as when Guybrush follows the Storekeeper on Melee island to find the Swordmaster (The Secret of Monkey Island), as well as when he tricks the Marquis De Singe into the temple structure on Flotsam Island (Tales of Monkey Island).
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