Sponges play a key role in (re)cycling of dissolved organic matter (DOM) and inorganic nutrients in coral reef ecosystems. Macroalgae and corals release different quantities of DOM and at different bioavailabilities to sponges and their microbiome. Given the current coral- to algal-dominance shift on coral reefs, we assessed the differential processing of macroalgal- and coral-DOM by three high and three low microbial abundance (HMA and LMA) encrusting sponge species. We followed the assimilation of naturally sourced ¹³C- and ¹⁵N-enriched macroalgal- and coral-DOM into bulk tissue and into host- versus bacteria-specific phospholipid fatty acids (PLFAs). Additionally, we comparedsponge-processing of the two natural DOM sources with ¹³C- and ¹⁵N-enriched laboratory-made diatom-DOM. All investigated sponges utilized all DOM sources, with higher assimilation rates in LMA compared to HMA sponges. No difference was found in carbon assimilation of coral- versus macroalgal-DOM into bulk tissue and host- versus bacteria-specific PLFAs, but macroalgal nitrogen was assimilated into bulk tissue up to eight times faster compared to the other sources, indicating its higher bioavailability to the sponges. Additionally, LMA sponges released significantly more inorganic nitrogen after feeding on macroalgal-DOM. Therefore, we hypothesize that, depending on the abundance and composition of the sponge community, sponges could catalyze reef eutrophication through increased turnover of nitrogen under coral-to-algal regime shifts.