Terrell Creek originates in a large area of ponds and wetlands including Lake Terrell. Fingalson Creek and Butler Ditch are two significant tributaries. After leaving Lake Terrell, Terrell Creek flows through rural and agricultural areas and then flows along the edge of Birch Bay State Park. Here the creek parallels the Bay and Birch Bay Drive before flowing into Birch Bay in a heavily urbanized area. Birch Bay is an area of shallow and expansive tide flats that provide habitat to a variety of marine life and is a popular shellfish harvesting destination.

Terrell Creek provides habitat for coho, chum, steelhead, coastal and resident trout. However, it has faced numerous challenges in recent years, including habitat degradation and the introduction of non-native fish species, which have threatened the health and survival of the creek's native fish populations.