A pot experiment was conducted to investigate the impact of high carbon dairy factory effluent application on the growth of perennial ryegrass ( Lolium perenne L.), plant nutrient uptake, soil microbial biomass carbon and nitrogen, populations of soil-microorganisms, root colonising fungi and the microbial functional diversity. The effluent was added at rates of 0, 100,000, 200,000 and 300,000 l ha –1. These rates are equivalent to 0, × 1, × 2 and × 3 normal field application rates. The added effluent contained (g l –1), C; 19.42, total P; 0.65; S, 0.75, K; 1.33, Na; 4.55, Mg; 0.11, NH 4; 0.073, total N; 0.073 and had a pH of 4.33. Replicate pots (incubated in a controlled-environment room at 20 °C, with 16 h light/8 h dark) were harvested at 32, 61, and 130 days after setting up of the experiment. In the first sampling, shoot dry matter levels declined significantly ( P < 0.01) with increased effluent. By the third sampling the trend was reversed with treated pots having greater amounts of shoot dry matter. The initial depression of growth was possibly due to a combination of factors including excess levels of available carbon (C) for microbes leading to immobilisation of nutrients, particularly nitrogen (N) and sulphur (S). Shoot N and S concentrations were lower ( P < 0.001) and the phosphorus concentrations were higher in effluent-treated samples. Soil microbial biomass-C (480 and 770 μg g −1 of biomass C in untreated and treated soil, respectively) and microbial-N (81 and 123 μg g –1 of microbial-N in untreated and treated soil, respectively) were significantly ( P < 0.001) greater in effluent-treated pots at all times. Populations of total culturable bacteria were higher ( P < 0.01) in the treated pots in the first sample (log 10 populations g –1 were 7.3 in untreated pots compared to 8.0 averaged across three treatments) but there were no differences in the subsequent two samples. Effluent also increased yeast populations (log 10 numbers g –1 were 0.6 in untreated pots and 3.1 in treated pots averaged across treatments and times P < 0.01) at all three sampling times. The Shannon-Weiner Diversity Index of root fungi decreased with increasing effluent application ( P < 0.01) while the species richness decreased with effluent as well as with time ( P < 0.1). Potential root pathogens Fusarium oxysporum, total Fusarium spp. and Pythium spp. significantly increased ( P < 0.05) in treated samples but in the final sampling, Codinaea fertilis significantly ( P < 0.05) decreased with effluent treatment. The microbial functional diversity pattern and the average well colour development (AWCD) in soil were significantly changed by the effluent application but effects were not detectable after 130 days.