ABSTRACT Large‐scale coastal reclamation projects threaten small‐scale fisheries that are critical to food security, economic stability, and cultural heritage. We investigated if and how livelihood strategies mediated impacts of reclamation on economic and social resilience of small‐scale fishery communities in Penang, Malaysia. We used the sustainable livelihoods framework (SLF) to explore how fishers adapted to environmental and economic shocks and the effectiveness of strategies for maintaining livelihoods. A mixed‐methods approach combined structured surveys and semi‐structured interviews. However, due to limited access to reclamation projects, only two of five planned interviews with community leaders were completed. Secondary data were also examined from reports by governmental authorities and environmental impact assessments. Human, natural, and social capital provided significant bottom‐up contributions to resilience adaptive livelihood strategies, while financial capital was less effective in improving sustainability because of structural constraints on access to subsidies and alternative jobs. Our findings highlight the need for targeted policy approaches to facilitate capacity building, financial access, and community‐based resource management. Our findings contribute to a policy discussion that balances economic development, social justice, and environmental sustainability so that growing nations do not leave behind their most marginalized fishing communities.