We investigated the effects of wastewater treatment plant (WWTP) discharge on the ecology of bacterial communities in the sediment of a small, low-gradient stream in South Australia. The quantification of genes involved in the biogeochemical cycling of carbon and nitrogen was used to assess potential impacts on ecosystem functions. The effects of disturbance on bacterial community structure were assessed by PCR-denaturing gradient gel electrophoresis of 16S rRNA genes, and clone library analysis was used to phylogenetically characterize significant shifts. Significant (P < 0.05) shifts in bacterial community structures were associated with alteration of the sediment's physicochemical properties, particularly nutrient loading from the WWTP discharge. The effects were greatest at the sampling location 400 m downstream of the outfall where the stream flow is reduced. This highly affected stretch of sediment contained representatives of the gammaproteobacteria that were absent from less-disturbed sites, including Oceanospirillales and Methylococcaceae. 16S rRNA gene sequences from less-disturbed sites had representatives of the Caulobacteraceae, Sphingomonadaceae, and Nitrospirae which were not represented in samples from disturbed sediment. The diversity was lowest at the reference site; it increased with proximity to the WWTP outfall and declined toward highly disturbed (400 m downstream) sites (P < 0.05). The potential for biological transformations of N varied significantly with the stream sediment location (P < 0.05). The abundance of amoA, narG, and nifH genes increased with the distance downstream of the outfall. These processes are driven by N and C availability, as well as redox conditions. Together these data suggest cause and effect between nutrient loading into the creek, shift in bacterial communities through habitat change, and alteration of capacity for biogeochemical cycling of N.