Phenotypic plasticity is the ability of a single genotype of an organism to exhibit variable phenotypes in response to fluctuating environments. It plays a crucial role in their evolutionary success. In natural environments, the importance of interactions between microalgae and other microorganisms is generally well appreciated, but the effects of these interactions on algal phenotypic plasticity has not been investigated. In this study, it revealed that indole-3-acetic acid (IAA), the most common naturally occurring plant hormone, can exert stimulatory at low concentrations and inhibitory effects at high concentrations on the growth of the green alga Desmodesmus. The morphological characteristics of Desmodesmus changed drastically under exposure to IAA compared with the algae in the control environment. The proportion of Desmodesmus unicells in monocultures increased with the IAA concentration, and these unicells exhibited less possibility of sedimentation than large cells. Furthermore, we discovered that lipid droplets accumulated in algal cells grown at a high IAA concentration. Results also demonstrated that the presence of algal competitor further stimulated inducible morphological changes in Desmodesmus populations. The relative abundance of competitors influenced the proportion of induced morphological changes. The results indicate that phenotypic plasticity in microalgae can be a response to fluctuating environments, in which algae optimize the cost-benefit ratio.