all things following their nature and living freely; Heaven's will for free and natural life
A rare yojijukugo expressing the idea that all beings should live according to their innate nature, freely and joyfully. Sense 2 adds a metaphysical dimension of Heaven's will. The literal image is of kites flying and fish leaping.
ruler's benevolence spreading so people find their place
A rare extended meaning: when a ruler's benevolence spreads, people naturally find their proper roles according to their abilities. This sense is more political and less common.
鳶飛魚躍 is a classical idiom that describes all things living freely according to their original nature.
In classical texts, 鳶飛魚躍 can refer to the ideal where, through a ruler's virtue, the people each demonstrate their abilities.
From 鳶飛戾天、魚躍于淵 in the 『詩経』, later quoted in the 『中庸』: “the kite flies to heaven; the fish leaps in the deep.” The image came to represent beings freely fulfilling their natural place.