Benthic microalgae (BMA) are a highly productive component of benthic ecosystems. BMA production and nitrogen fluxes were examined in four sub-basins of Florida Bay, in both seagrass and seagrass-free patches, as well as seasonally in a persistent seagrass-free patch in eastern Florida Bay. BMA biomass and oxygen production was highest in seagrass-free sediments with little seasonal variability. Despite high porewater NH4+ concentrations there was little NH4+ efflux. As in temperate estuaries, sub-tropical BMA production and N-assimilation act as a filter to prevent the release of nutrients to the water column. Microelectrode measurements revealed that BMA production causes a doubling of the depth to which O2 penetrates, increasing suitable conditions for nitrification and coupled denitrification. However, the presence of H2S in surface sediments can inhibit nitrification, and there is little nitrogen removal from Florida Bay by denitrification. As a result, BMA N-assimilation is an important nutrient sink in this oligotrophic estuary.