Melbourne Water's Eastern Treatment Plant (ETP) produces a secondary-treated sewage effluent which is chlorinated and discharged into Bass Strait at Boags Rocks, Victoria, Australia. Disappearance of the sensitive brown seaweed Hormosira banksii from rock platforms immediately adjacent to the shore-line discharge was identified in the early 1990s. Subsequently, Melbourne Water and CSIRO undertook an environmental impact assessment and review of land and marine effluent disposal options, which included ambient water quality monitoring, biological monitoring, bioaccumulation studies and toxicity testing of existing effluent to assess the nature and magnitude of the environmental effects. This paper presents data from the toxicity monitoring programs since 2001. Chronic toxicity testing using macroalgal germination and cell division (H. banksii), microalgal growth rate (Nitzschia closterium) and scallop larval development (Chlamys asperrima), confirmed that ammonia was the major cause of effluent toxicity. Results from this toxicity monitoring program were used to develop action trigger values for toxicity for each species, which were then used in a refined monitoring program in 2005-2007. An upgrade of the ETP is in progress to improve nitrification/denitrification in order to reduce ammonia concentrations and the toxicity of the effluent. Toxicity testing with a simulated upgraded effluent confirmed that ammonia concentrations and toxicity were reduced. Estimated "safe" dilutions of effluent, calculated using species sensitivity distributions, decreased from 1:140-300 for existing ETP effluent to 1:20 for nitrified effluent, further confirming that treatment improvements should reduce the impact on marine biota in the vicinity of the discharge.