Sydney's large natural harbor, usually called Sydney Harbour (correctly Port Jackson), was the reason that the original penal settlement was established in the area now known as Circular Quay, rather than further south at Botany Bay as James Cook recommended after mapping the coast in 1770. While it is now very built up (and Sydneysiders will pay a premium for views of the water) it is still very beautiful.
The harbor is served by a dedicated ferry service which transports passengers across the harbour. An excellent way to see both the harbor and Sydney attractions is to take a ferry from Circular Quay to Taronga Zoo, Manly or Parramatta.
There are a number of islands in the centre of the harbor which you can visit for a picnic: Shark, Goat, Clark and Rodd Islands. These are very beautiful and have magnificent views of sailing boats on the harbor and of Sydney's harborside buildings. At most times of the year they will be nearly deserted. You will need to reserve a place and pay a fee of approximately $5 per head to the National Parks and Wildlife Service (ph 02 9960 6266 or fax 02 9960 3965). You also cannot moor a boat at any of these islands. Goat, Rodd and Clark islands are not served by ferries, so unless you can arrange for a private drop-off, you will need to charter a water taxi at a cost of approximately $20 per head.
The world famous Sydney to Hobart Yacht Race begins every year on Boxing Day, on Sydney Harbour. Thousands of spectator craft take to the water to farewell the yachts as they set off on their grueling journey to Hobart. Seaworthy craft follow the yachts through the Sydney Heads into the open ocean. The private hire water taxi service H2O Taxis have an offshore service that is suitable for this and other offshore activities such as scuba diving.
The Sydney Harbour Bridge has an excellent view of the city, especially at dawn and dusk, although the drivers and train passengers relegated to the middle of the Bridge don't see it. There are four things to do on the Bridge:
Cross it on one of the protected lanes on either side of the bridge accessible from Milsons Point in North Sydney or the Rocks in the city. The eastern side is reserved for pedestrians and the western side for cyclists and there is no toll.