Despite its size, Aliso Canyon likely formed during the Wisconsinian glaciation, a period lasting from roughly sixty thousand to ten thousand years ago. The San Joaquin Hills rose during this time, though the uplift had actually begun as early as 1.22 million years ago. The glaciation pushed the Pacific Northwest's cold, rainy climate south into California. Southern California received substantially more annual rainfall, transforming streams into powerful erosive forces. Aliso Creek carved a V-shaped river valley through the rising hills. Near the glaciation's end, the canyon had become a deep gorge with a narrow, powerful watercourse at the bottom. When the glaciers melted and sea levels rose, water backed into the canyon and turned it into a saltwater inlet. The creek deposited enough sediment to fill this fjord with alluvium, creating the flat valley floor visible today. This is why the canyon resembles an aged U-shaped glacial valley rather than a young V-shaped river cut.

Aliso Canyon stretches from near Laguna Niguel Regional Park to its outlet at Laguna Beach, making it one of the largest gaps through the San Joaquin Hills. The valley divides into three distinct sections. The upstream stretch is broad and comparatively shallow. The middle section runs from the Wood Canyon Creek confluence to a wastewater treatment plant near the ocean. The final section narrows into a steep gorge about a mile long. Most of the valley floor consists of deep alluvium. From this floor, steep hills rise abruptly to the canyon rim, dissected by short, precipitous side canyons. Wood Canyon, the major branch, runs southward to join the main canyon upstream of the ocean. Cities bound the formation: Laguna Beach to the south and west, Laguna Niguel to the east, Aliso Viejo to the northeast. Private development at the mouth includes a hotel and golf course with a channelized stretch of creek vulnerable to flooding.

The canyon supports four major vegetation zones. Riparian habitat lines the creek with oak, sycamore, alder, and live oak. Grassland stretches from the riparian edge to the hillside. Chaparral and coastal sage scrub cover the slopes and side canyons. Historically, salt marshes at the creek's mouth sustained a large population of tidewater goby, an endemic California species. A sewage treatment plant eradicated those marshes. Southern steelhead trout once spawned and resided in the creek until the early 1970s. Bald eagles fed on those steelhead, as did the Acjachemen. Now carp are the only remaining fish in lower Aliso Creek. Bobcats, mountain lions, lynx, and coyotes roam the canyon. More than one hundred bird species have been recorded, including the endangered California gnatcatcher and occasional bald eagles. Non-native plants have begun establishing themselves from residential areas along the ridges.

Urban development since the 1950s has increased runoff into Aliso Creek, causing severe erosion throughout the valley floor. A habitat enhancement project in the 1990s attempted to dam the creek and construct irrigation pipelines for artificial terraces of native plants. A design flaw caused the dam to make erosion worse. The irrigation pipes broke. The terraces lie fallow. Flooding in 1997-98 severely damaged the dam and degraded the riverbed so significantly that the creek now flows in a gully below the surrounding land. Former riparian habitat and wetlands have dried up. A 2008 Army Corps of Engineers proposal would have built twenty drop structures and underground concrete walls, moving enormous quantities of earth across acres of parkland. A 2009 study suggested letting the creek reach natural equilibrium, as additional interference would likely cause more damage. No major erosion control project has proceeded. The canyon persists in its ongoing negotiation between suburban pressure and geological time.