Phytoplankton density and composition, together with phosphorus (P) concentrations and size-fractionated alkaline phosphatase activity (APA), were investigated in dredged and undredged zones in Lake Taihu from January to April 2004. P concentrations were also determined in the corresponding interstitial water. Enzyme Labeled Fluorescence (ELF) was used for localizing extracellular phosphatase on phytoplankton cell membranes in April. The increase in phytoplankton density was paralleled by a significant increase in soluble reactive P (SRP) concentrations in the water column and interstitial water at all sites from January to April, with chlorophyte gradually becoming dominant. In February, at the undredged site, more algae dominated by chlorophyte occurred in overlying water, rather than in the surface, coinciding with higher SRP concentrations in overlying and interstitial water. Therefore, P status in the bottom is important to phytoplankton development in terms of density and composition. Undredged sites had higher SRP concentrations in interstitial water than dredged sites. Furthermore, Higher APA was observed, accompanied by higher dissolved organic P (DOP) and lower total P at the undredged site in February. Enzymatic hydrolysis of DOP may have been an additional source of P for phytoplankton. In April, Schroederia sp. was ELF labeled in surface water at the dredged site, which showed markedly lower SRP concentration, but not at the undredged site with higher SRP concentration. Thus, the dredging might regulate algal density and composition in water column by reducing P bioavailability.