Melodrama and drownings abound at the end of this novel. Basically, half the main cast is dead by the end, and a third of the survivors are crippled with a permanent case of moodiness. This type of ending seems fairly typical of Victorian romance and drama – just check out George Eliot's 1860 novel Mill on the Floss for more tragic drownings. This type of ending also has a lot in common with the French realist novels the came out in the nineteenth century, by authors like Gustave Flaubert and Victor Hugo (who wrote of a drowning in Les Misérables).
Why bring up French novels when we're talking about an English one? Well, a lot of critics noticed the similarities between Hardy's novel and the French realist novels like Madame Bovary, which featured a tragic ending as well. In 1878, a reviewer wrote that The Return of the Native ends after "a second chapter of accidents sends the heroine to death by drowning. And the hero [...] is left to live on [...] It is all very mournful, and very cruel, and very French" (source: Barnes and Noble edition, appendix, 426). Quel dommage! (Or "what a pity," but it sounds more dramatic in French.)
But is Hardy really rocking out his French Connections (movie pun!) and his Victorian melodramatic leanings with this ending of sorrow and woe and drowning? Well, he is and he isn't. Hardy is also giving a shout-out to Tragedy (yes, capital T) in the classical sense here. See, Hardy largely modeled this novel after Greek tragedy, or dramatic tragic plays from ancient Greece that consisted of a series of acts and a chorus. We also see elements of Shakespearean tragedy in this novel, with all the doomed lovers and familial suffering and misunderstandings and death. Lots of death. And woe. Don't forget the woe.
The deaths at the end of this novel are definitely tragic in a Greek way. The two drowning victims, Eustacia and Damon Wildeve, are victims of an angry Mother Nature and of fate. We get a sense that these two are doomed a few chapters before they even approach the water that's going to kill them. First, we get a sense of a doomed atmosphere: "The gloom of the night was funereal; all nature seemed clothed in crape" (5.7.16). And our heroine is also cast as the walking dead a few minutes before she actually dies. She's described as a "sobbing" ghost-like figure (5.8.99). So, back to the similarities to Greek tragedies, the ancient dramas often featured deus ex machina devices, a term that literally means "fate from the Gods." In other words, some God or "fate" would interfere in the lives of our characters and cause tragedy. Hardy's vicious storm and doomed drowning victims fit the bill here.
But The Return of the Native also features a very substantial epilogue that goes on for a pretty long time. This epilogue seems downright anticlimactic after the intense drowning ending. And that may have been the point. Hardy's epilogue may have deliberately undermined the intensity of the drownings in order to move the emphasis to another major aspect of this novel: Realism. With the epilogue, Hardy shows that life goes on in some form or fashion and that some good things can come out of a disaster, though certainly not for everyone.
One other thing worth noting about the ending(s) of the novel: Hardy only originally planned for the first (drowning) ending. The original epilogue he wrote was much shorter and much sadder – the three surviving characters were all left alone and miserable after the deaths of Eustacia and Damon. Here's Hardy's own footnote on the matter, left in the novel:
The writer may state here that the original conception of the story did not design a marriage between Thomasin and Venn. He was to have retained his [...] weird character to the last, and to have disappeared mysteriously from the heath [...] - Thomasin remaining a widow. But certain circumstances of serial publication led to a change of intent. (6.3.46)
Hardy goes on to tell readers that they can imagine whatever ending they think is best here, so he sort of became the first person to ever write a Choose Your Own Adventure story. Good job, Hardy! Basically, Hardy faced pressure from his audience, his publishers, and his own bank account, and so decided to write an ending that would be a crowd-pleasing moneymaker, even though it rankled his artistic sensibilities. It really is fascinating that the readers of this novel, coming from the land of Shakespearean tragedy, didn't have the stomach, apparently, for a harsher ending. But as much as the Victorian-novel-reading public didn't mind their sad endings and their drownings, they did want at least some of the cast to get a happy ending. The type of flat-out tragedy that Hardy wanted to create in novel form was apparently more suited to France at this time period; he jumped the gun a bit in England.