The coastal marine ecosystem near the Elwha River was altered by a massive sediment influx—over 10 million tonnes—during the staged three-year removal of two hydropower dams. We used time series of bathymetry, substrate grain size, remotely sensed turbidity, scuba dive surveys, and towed video observations collected before and during dam removal to assess responses of the nearshore subtidal community (3 m to 17 m depth). Biological changes were primarily driven by sediment deposition and elevated suspended sediment concentrations. Macroalgae, predominantly kelp and foliose red algae, were abundant before dam removal with combined cover levels greater than 50%. Where persistent sediment deposits formed, macroalgae decreased greatly or were eliminated. In areas lacking deposition, macroalgae cover decreased inversely to suspended sediment concentration, suggesting impacts from light reduction or scour. Densities of most invertebrate and fish taxa decreased in areas with persistent sediment deposition; however, bivalve densities increased where mud deposited over sand, and flatfish and Pacific sand lance densities increased where sand deposited over gravel. In areas without sediment deposition, most invertebrate and fish taxa were unaffected by increased suspended sediment or the loss of algae cover associated with it; however, densities of tubeworms and flatfish, and primary cover of sessile invertebrates increased suggesting benefits of increased particulate matter or relaxed competition with macroalgae for space. As dam removal neared completion, we saw evidence of macroalgal recovery that likely owed to water column clearing, indicating that long-term recovery from dam removal effects may be starting. Our results are relevant to future dam removal projects in coastal areas and more generally to understanding effects of increased sedimentation on nearshore subtidal benthic communities.