As filter feeders, sponges are highly integrated with their environment. Many sponges also host diverse communities of bacteria, including many that are hypothesized to carry out a variety of nitrogen transformations. The presence of these bacteria makes sponges an integral part of the nitrogen cycle in their habitats and suggests that sponges are an excellent bioindicator of environmental conditions. To test these hypotheses, we collected sponge tissue from two Oregon estuaries and extracted microbial DNA from these samples. To assess bacterial diversity, we performed Denaturing Gradient Gel Electrophoresis (DGGE) on a fragment of the 16S gene. We also examined nitrogen cycling in sponges by examining the sponge samples for the presence of the amoA and nirS genes, which encode for enzymes in the nitrification and denitrification pathways, respectively. DGGE results showed diverse bacterial communities, with clear differences between the sites. The results also showed little variation within sites, but were suggestive of seasonal variation. Both functional genes were present in all five species of sponge that we collected. These results suggest that sponges and their associated bacterial communities play a critical role in nitrogen transformations within these bays and that these sponge-associated bacterial communities are bioindicators of environmental variation