Blooms of noxious N₂ fixing cyanobacteria such as Nodularia spumigena are a recurring problem in some estuaries; however, the historic occurrence of such blooms in unclear in many cases. Here we report the results of a palaeoecological study on a temperate Australian lagoon system (the Gippsland Lakes) where we used stable isotopes and pigment biomarkers in dated cores as proxies for eutrophication and blooms of cyanobacteria. Pigment proxies show a clear signal, with an increase in cyanobacterial pigments (echinenone, canthaxanthin and zeaxanthin) in the period coinciding with recent blooms. Another excursion in these proxies was observed prior to the opening of an artificial entrance to the lakes in 1889, which markedly increased the salinity of the Gippsland Lakes. A coincident increase in the sediment organic-carbon content in the period prior to the opening of the artificial entrance suggests that the bottom waters of the lakes were more stratified and hypoxic, which would have led to an increase in the recycling of phosphorus. After the opening of the artificial entrance, there was a  ∼  60-year period with low values for the cyanobacterial proxies as well as a low sediment organic-carbon content suggesting a period of low bloom activity associated with the increased salinity of the lakes. During the 1940s, the current period of re-eutrophication commenced, as indicated by a steadily increasing sediment organic-carbon content and cyanobacterial pigments. We suggest that increasing nitrogen inputs from the catchment led to the return of hypoxia and increased phosphorus release from the sediment, which drove the re-emergence of cyanobacterial blooms.