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Phosphorus (P) is an important limiting nutrient in aquatic ecosystems and knowledge of P cycling is fundamental for reducing harmful algae blooms and other negative effects in water. Despite their importance, the characteristics of P cycling under changing nutrient conditions in shallow lakes were poorly investigated. In this study, in situ incubation experiments were conducted in a natural riparian zone in the main diversion channel used for water transfer into Lake Taihu (Wangyu River). Variations in microbial biomass, dissolved P fractions (organic and inorganic), and alkaline phosphatase activity (bulk APA and specific APA) were determined after incubation with and without the addition of P and nitrogen (N) (4 total water treatments: +P, +N, +NP, and control). Experiments were conducted during two seasons (late spring and early fall) to account for natural differences in nutrient levels that may occur in situ. Our results demonstrated that low levels of DRP may not necessarily indicate P limitation. Phytoplankton exhibited “serial N limitation with P stress” in May, such that chlorophyll a (Chl a) increased significantly with N addition, while the limiting nutrient shifted to P in October and phytoplankton biomass increased with P addition. Phytoplankton contributed greatly to APA production and was significantly influenced by P bioavailability, yet high levels of bulk APA were also not necessarily indicative of P limitation. In contrast to phytoplankton, bacteria were less P stressed. As a consequence of enhanced utilization of dissolved reactive P (DRP) and dissolved organic P (DOP), +N treatment elevated APA significantly. By contrast, APA could be repressed to low values and phytoplankton converted a large portion of DRP to DOP with P addition. But this was not consistent with bacteria APA (bact-APA) in the absence or presence of abundant phytoplankton biomass. The correlation between bulk APA and DRP was good at separate sites and discrepant for the whole data set. Regulation of APA was demonstrated by an inverse hyperbolic relationship between bulk APA, specific APA, and DRP, with a transition from high to low activity occurring between 20 and 50 μg L-1. This study provides a better understanding of how APA and P cycling change with nutrient perturbations in Lake Taihu system. The obtained results can help understanding the process of P cycling in water and providing a reference for nutrient control in the water transfer project.