In "The Lagoon," the central characters--the white man Tuan, Arsat the Malayan warrior, Diamelen the lady love of Arsat, and Arsat's brother who is also a warrior--play out their lives in the presence of a tropical lagoon in Malaysia. The lagoon in "The Lagoon" is so imbued with meaning that it might be considered a character in the story in its own right. The lagoon has meaning as an object in the physical world, as a potent symbol, and as a profound metaphor.
The lagoon is powerfully described in the short story in great and varying detail making the physical location of the story critical to the events and meaning conveyed: "The Lagoon" could not succeed in the same way as a story if it were placed in any other setting. The lagoon is symbolic of the enmity faced between the two warrior brothers and their new-formed enemies who become enraged that Arsat would dare to take Diamelen, the ruler's concubine. In this sense, the lagoon symbolizes dark and threatening forces that loom on the horizon of individuals' choices--the potential for horrific consequences from actions in moral dilemmas.
While running off with the ruler's concubine isn't defined as a moral good, Arsat's love for Diamelen is defined as a moral good in "The Lagoon." The story also defines Arsat's love for his brother as a moral good: they are warriors together and because of their brother's love for each other are willing to risk their lives for each other. This is the moral good upon which the dilemma of the story is built: Which love must Arsat select and honor when the dilemma occurs and only one of two needful and morally good choices may be chosen. It is the lagoon that symbolizes the dark consequences of the unchosen good in any moral dilemma, a situation requiring but one choice between two (or many) morally good options.
Finally, the lagoon is a metaphor for psychological motive, the state of mind that is present when one is forced to choose when that choice must of necessity leave something equally good unchosen, excluded, and the prey of potentially drastic outcomes and consequences. The metaphor links the lagoon to the state of the human condition represented by Arsat's possibly ignoble motive's in choosing as he does: Is it love that makes him choose as he does or is it love and personal reward combined that make him so choose?