Coastal bays, which are typically shallow, located in the photic zone, and have little freshwater input, respond differently to nutrient enrichment than deeper estuaries. Because of the diversity of benthic and pelagic autotrophs they support, coastal bays are capable of modulating the effects of nutrient enrichment, derived from both allochthonous and autochthonous sources. We describe a study performed in Hog Island Bay, Virginia, located along an eutrophication gradient on the Delmarva Peninsula, to determine sources, sinks, and fates of nitrogen (N). On an annual basis, allochthonous sources of N, mainly base flow and atmospheric deposition, contributed 13%, whereas organic N remineralization (NRemin) in the sediments, supplied 77% of the total N available to support primary production. On a daily basis, N released by NRemin approximated the demand by benthic microalgae. Annually, N demand by benthic microalgae accounted for 55%, phytoplankton (16%), salt marshes (16%), macroalgae (7%), and denitrification (6%) of total N uptake. Maximum daily N assimilation rates for benthic microalgae, macroalgae, and phytoplankton were remarkably similar despite large differences in standing biomass, suggesting that turnover time is a critical parameter regulating availability of N to support continued autotrophic production and retention of N in sediments. Experiments were performed in sediment mesocosms taken from Hog Island Bay to track 15N into macroalgae, benthic microalgae, bulk sediment, and the bacterial-specific biomarker D-alanine (D-Ala). When live, macroalgae competed with benthic microalgae for light and nutrients; when dead, up to half of the incorporated N in macroalgae was transferred to sediments. Within sediments we observed shuttling of N between bacterial and benthic microalgal pools increasing the retention time of N within the system. At nutrient enrichment levels above some “critical threshold”, we suggest that pelagic production will become increasingly dominant; benthic autotrophs will no longer function to help retain and recycle nutrients, which will then flux out into the water column to further support eutrophication.