Coastal floodplains, wetlands and lagoons are key habitats for bats, providing a rich food supply and abundant water to meet their high energy demands. However, urbanisation has degraded coastal lagoon systems, with pollution (i.e. heavy metals, herbicides and pesticides), eutrophication and urban sprawl reducing the extent of viable habitat and biodiversity. We investigated the impact of habitat degradation on insectivorous bat activity and community structure across a disturbance gradient from degraded lagoons in Sydney to medium quality lagoons in Sydney or regional NSW and high quality lagoons surrounded by extensive bushland. We examined whether the food web structure varied across the disturbance gradient using stable isotope analysis and tested sediments, bats and their prey for contamination by heavy metals. We predicted that bat activity and diversity would be reduced in low quality lagoons and that the threatened Large-footed Myotis (Myotis macropus), an obligatory aquatic species would be significantly impacted by the decline in aquatic habitat quality. Using Anabat detectors, we found bat activity within high quality coastal lagoons was up to nine times greater than at low quality lagoons. Furthermore, the number of species present at higher quality lagoons was almost double the number detected at low quality lagoons. Consistent with this, the Large-footed Myotis was only recorded at high and medium quality lagoons. Heavy metal concentrations were higher in Myotis hair at the medium than the high quality lagoons. These findings inform managers about the state of bat populations in coastal lagoons, providing targets and mechanisms for rehabilitation efforts.