To improve the water quality of Lake Yuehu, a water diversion from the Han River was conducted in July 2008. However, an unexpected Microcystis bloom occurred in the lake after water introduction. Water and sediment samples were collected from Lake Yuehu and the variation of chemical and biochemical parameters, as well as the phytoplankton community, were analyzed during the water diversion to assess its effect and to clarify the mechanism leading to the Microcystis bloom. The nitrogen (N) concentration was increased and phosphorus (P) concentration decreased in Lake Yuehu after receiving water from the Han River, which had a high loading of N and a low loading of P. These conditions may benefit the growth and dominance of non-N2 fixing Microcystis, as it may not have suffered from P limitation during our study because it did not produce extracellular phosphatase, which worked as an indicator of P deficiency, as evidenced by the in situ enzyme-labelled fluorescence. Notably, the sediment Fe (OOH)~P content significantly decreased in Lake Yuehu; this pulsed release of P from the sediment might have sustained the Microcystis bloom. Based on our results, algal blooms may occur as a consequence of conducting water diversion projects to improve water quality.