The prison in Matara, 160 kilometres (100 miles) south of the capital, Colombo, was battered by the waves and the inmates took advantage of the natural disaster to flee, a police official said.
"About 300 inmates have escaped," the official said. "We don't know if there were any casualties at the prison after it was inundated by sea water."
The Matara prison is located within a 16th-century Dutch-built fort which was several feet (a metre) under water.
At least 406 people were killed in the tidal waves that smashed into the palm-fringed island. Many others were missing. The tidal waves were triggered by a powerful earthquake that hit an island off Indonesia early Sunday.