In reservoirs, water level fluctuations strongly influence phytoplankton development. However, studies on the response of phytoplankton in the reservoir-bay to water level fluctuations are very scarce, especially in the highly dynamic reservoir system, for instance, the Three Gorges Reservoir (TGR) on the Yangtze River in China. Therefore, we carried out weekly monitoring in a typical tributary bay-Xiangxi Bay of the TGR from March 2008 to March 2009, to analyze the dynamics of phytoplankton functional groups, as well as their response to the water level fluctuations and other environmental conditions. The phytoplankton functional groups G (short, nutrient-rich water columns with high light and without nutrient deficiency), M (dielly mixed layers of small eutrophic, low latitude with high insolation and without flushing and low total light) and Lo (summer epilimnia in mesotrophic lakes with segregated nutrients and without prolonged or deep mixing) were the most important in biomass, mainly represented by Pandorina morum and Eudorina elegans, Microcystis aeruginosa, Peridiniopsis niei and Ceratium hirundinella, respectively. The dominant functional groups had close relationships with the water level fluctuations, light and nutrient, etc. Principal components analysis and redundancy analysis indicated that phytoplankton functional groups in Xiangxi Bay were restricted by the mixing regime and other abiotic variables under the influences of the mixing regime. In Xiangxi Bay, the water level fluctuation showed significant correlations with many physicochemical variables, including the mixing depth (r = 0.97, p < 0.001) and the relative water column stability (r = -0.80, p < 0.001). The study implied that water level fluctuations had complex influence on environmental changes and selecting for phytoplankton functional groups in a highly dynamic reservoir-bay. The important characteristics of the dominant phytoplankton functional groups in Xiangxi Bay were also discussed.