All economic activity is concentrated on Diego Garcia, where joint Anglo-American defence facilities are located. Approximately 2,000 native inhabitants, known as the Chagossians or Ilois, were forcibly relocated to Mauritius before construction of these facilities; in 1995, there were approximately 1,700 UK and US military personnel and 1,500 civilian contractors living on the island.

Construction projects and various services needed to support the military installations are carried out by military and contract employees from Britain, Mauritius, the Philippines, and the US. There are no industrial or agricultural activities on the islands. The licensing of commercial fishing provides an annual income of about $1 million for the territory.

Separate telephone facilities for military and public needs are available, providing all standard commercial telephone services, including connection to the Internet. International telephone service is carried by communications satellite. The territory has three radio broadcast stations, one AM and two FM, and one television broadcast station. Because of its equatorial location, Diego Garcia can use geosynchronous satellites over the Indian Ocean and also some over the eastern Atlantic Ocean. Amateur radio operations occur from Diego Garcia, using the British callsign prefix VQ9.

Postage stamps have been issued for British Indian Ocean Territory since 17 January 1968. Since the territory was originally part of the Seychelles, these stamps were denominated in rupees until 1992. However, after 1992 they became denominated in pounds sterling which is the official currency of the territory.