The island is located in the Caribbean Sea along the eastern side of the Yucatan Peninsula about 82 km (51 mi) south of Cancún and 19 km (12 mi) from the mainland. The island is about 48 km (30 mi) long and 16 km (9.9 mi) wide. With a total area of 477.961 km2 (184.542 sq mi), it is Mexico's largest Caribbean island, largest permanently inhabited island, and Mexico's third-largest island, following Tiburón Island and Isla Ángel de la Guarda.

The majority of the island's population lives in the town of San Miguel (pop. 77,236 in 2010), which is on the island's western shore. The municipality, which includes two small areas on the mainland enclaved within the Municipality of Solidaridad with a land area of 10.423 km2 (4.024 sq mi), has a total land area of 647.33 km2 (249.94 sq mi).

Large parts of the island are covered with mangrove forest which has many endemic animal species. Cozumel is a flat island based on limestone, resulting in a karst topography. The highest natural point on the island is less than 15 m (49 ft) above sea level. The cenotes are deep water-filled sinkholes formed by water percolating through the soft limestone soil for thousands of years. Cozumel's cenotes are restricted to qualified cave divers with appropriate credentials.

Cozumel is surrounded by a diverse ecosystem of coral reefs that is home to more than 1,000 marine species. The reefs are primarily found on underwater cliffs, there are also some in coastal lagoons and on sand bars at the north tip of the island. They are part of the much larger Mesoamerican Barrier Reef System which is the second largest reef in the world, stretching over 1,000 kilometers (620 mi). Cozumel's deeper coral reefs were historically famed for their black corals, yet black coral populations declined from the 1960s to the mid-1990s because of overharvesting and by 2016 had not recovered. A huge portion of the reef on the south side of the island is sectioned off into the Arrecifes de Cozumel National Park. This park is protected under the Ramsar Convention along with Manglares y Humedales del Norte de Isla Cozumel, they both are included in the UNESCO protected area called Isla Cozumel Biosphere Reserve, Mexico. The site includes the coral reefs on the southern coast of Cozumel. The reefs in Cozumel are made up of hard coral and soft coral. The marine life that inhabit the reefs include zoanthids, polychaetes, actinarians, hydroids, sponges, crustaceans, mollusks, echinoderms and many varieties of Caribbean fish. The park is also a habitat to several endangered marine species such as the loggerhead sea turtle, hawksbill sea turtle, queen triggerfish, and the endemic splendid toadfish. Due to the abundant marine life and coral reefs the clear and warm Caribbean water, Cozumel is considered one of the best scuba-diving destinations in the world.