A three-dimensional hydrodynamic model was successfully calibrated and validated for Saltsjö Bay, located in the inner Stockholm archipelago. The work aims to obtain a scientific understanding of specific hydrodynamic characteristics of the bay. The focus is on the influence of the freshwater inflow on the hydrodynamic characteristics of the bay, which shares common features with other relatively small bays and estuaries. The model was used for investigating the flow structure, stratification, exchange process, flushing time, and oxygen content. The predicted water levels, temperature, salinity, and dissolved oxygen (DO) profiles were in good agreement with the measurements. The flow structure in the bay is characterised by the existence of large secondary flow regions and multilayer flows. The principal cause of the large secondary flow regions is the interaction of prevailing two-layer flows that have opposite directions. The stratification can be characterised by two long winter and summer stratification periods and two short overturn periods. In the absence of the freshwater, the two-layer flow changed to a three-layer flow but the flow stratification remained unaltered. The flushing time in Saltsjö Bay (2–29 days) is similar to that found in smaller water bodies. The flushing time increased to 40 days when the freshwater inflows were removed from the model boundaries. The period from 1 September to 1 November is characterised by bottom oxygen deficiency when the DO concentrations fall below 5 mg/L. At the open boundary, 3% to 25% of the total volume of the bay is exchanged daily. The work should be of interest and relevant to other bays of comparable size that have similar hydrodynamic characteristics and are subject to freshwater inflows.