The lake littoral zone is periodically exposed to water due to water level fluctuations, driving the succession and distribution of littoral vegetation covers, which complexly affect nutrient biogeochemical transformation. However, the combined effects of water level fluctuations and other environmental factors on microbial characteristics and functions at the regional scale remain unclear. In this study, typical vegetation cover types along various water levels were chosen to investigate the effects of water level and vegetation cover on the microbial community and functional genes in the Lake Erhai littoral zone. The results showed that water level fluctuations influenced oxygen and nitrogen compound contents due to oxic–anoxic alternations and intensive material exchange. Meanwhile, vegetation cover affected the organic matter and total nitrogen content through plant residues and root exudation supplying exogenous carbon and nitrogen. Along the hydrological gradient, the high microbial diversity and abundant microbes related to nitrogen cycling were observed in interface sediments. It was attributed to the alternating aerobic–anaerobic environments, which filtered adaptable dominant phyla and genera. The abundances of amoA AOA, nirS, and amx were higher than those of the other genes and were strongly related to flooding days and water content. In conclusion, water level fluctuations and vegetation type jointly affect microbial community structure and nitrogen-related functional genes.