Wave‐current interactions play a major role in the dynamics of shallow tidal inlets. This study investigates these interactions at a natural inlet, with a strong focus on current‐induced changes on wave propagation. The analysis of hydrodynamic data collected at the Albufeira lagoon, Portugal, revealed spatiotemporal variations of water levels and wave heights along the inlet, attributed to wave‐current interaction processes. We compared the simulations of a coupled wave‐circulation modeling system, computed with and without waves, and propagated with and without current feedback. The wave‐induced setup inside the lagoon represented 7%–15% of the offshore significant wave height. The accuracy of the wave's predictions improved when current feedback was included. During ebb, the currents increased the wave height at the mouth of the inlet (up to 20%) and decreased the wave height in the inlet (up to 40%), due to current‐induced refraction, steepness dissipation, and partial blocking. During flood, the currents decreased the wave height in the inlet (up to 10%) and increased the wave height at the exterior parts of the ebb shoal (up to 10%), due to current‐induced refraction. These effects significantly attenuate seaward sediment fluxes during ebb and contribute to the sediment accretion in the inlet.