Diamond Creek starts at an elevation of about 1,000 feet (305 m) on the southern Kenai Peninsula and drains a watershed of 3,424 acres (1,386 ha) while flowing generally west for about 5 miles (8 km) from Diamond Ridge to the northern shore of Kachemak Bay, about 10 miles (16 km) southeast of Anchor Point and 6 miles (10 km) west-northwest of Homer, Alaska. The local name was first published by the U.S. Geological Survey on topographic maps in the 1950s. The watershed is formed mostly glacial deposits covering bedrock representing the Beluga Formation that developed during the Miocene and consists of nonmarine sandstone, siltstone, mudstone, with coal seams, and some volcanic ash. During the Last Glacial Period, several major glaciations formed many of the present-day landforms including kettle ponds and relict glacial lakebeds. During the Naptowne glaciation, the Moosehorn ice advance was the most influential in shaping the Diamond Creek watershed. Geological evidence suggests that Diamond Creek was once an ice marginal drainage situated between moraines and flowing north towards the Anchor River. When the Moosehorn glacier retreated, Diamond Creek cut westward through the moraine to empty directly into Cook Inlet.

Archaeological evidence suggests that the first humans inhabited the Cook Inlet basin between 10,000 and 7,500 years ago. The Dena’ina people arrived sometime between 1,500 to 1,000 years ago from the interior and evidence of their early settlements includes fish camps and villages with large multi-room houses. In 1778, Captain James Cook was the first European to explore and document the shores of the inlet and named many of the important geographical features. In 1787 or 1788, Russian fur traders with the Shelikhov-Golikov Company established a trading post called Alexandrovsk at present-day Nanwalek. The Alaska Purchase in 1867 transferred the territory from Russia to the United States and in 1885, the first salmon trap was built in Cook Inlet. It was built to withstand strong tidal currents and waves and became known as a pile trap because whole logs were driven vertically into the sandy bottom and webbing was fastened to the piles to form the walls of the trap. The first trap was so successful that more were built in other areas including Kachemak Bay which had 4 traps; one on the north shore about 2 miles (3.2 km) west of and Diamond Creek, and three on the south shore at MacDonald Spit, Point Naskowhak, and adjacent to Flat Islands on the mainland. By the 1930s, all the fish traps were owned by the Fidalgo Island Packing Company, which also operated the cannery at Port Graham.

The Diamond Creek watershed is the site of two recreational parks. The Homer Demonstration Forest is a preserve of 360 acres (146 ha) in the watershed headwaters that contains an arboretum, self-guided nature trails, and in winter months, a local nordic ski club maintains an extensive network of groomed cross-country ski trails. The Diamond Creek Recreation Area is a unit of Kachemak Bay State Park that encompasses 324 acres (131 ha) between the Sterling Highway to the north and Cook Inlet to the south which presently has minimal development. An access road from the Sterling Highway is steep and extremely rough in places; however, the road leads to a parking area for the Diamond Creek Trail that follows a deep ravine to a gravel beach on Kachemak Bay and is used by birders, horseback riders, dog walkers, cyclists, and hikers throughout the year. Mountain bike trails have been constructed and are maintained by a local cycling club. Read more here and here. Explore more of Diamond Creek and Kachemak Bay here: