Estuaries play a key role in moderating the flow of nitrogen (N) to marine ecosystems. However, the magnitude of this N removal can vary dramatically both within and between estuaries due to the benthic habitats present. Here, we compare denitrification, coupled nitrification–denitrification, anammox, and dissimilatory nitrate reduction to ammonium (DNRA) across a mosaic of benthic habitats in the subtropical Noosa River Estuary, Australia. Using 15N tracer techniques and passive pore‐water samplers, we show that coupled nitrification–denitrification was the dominant pathway for N2 production across all habitats, with higher rates in vegetated habitats (10–70 μmol N m−2 h−1) compared to bare sediments (0.9–2 μmol N m−2 h−1). Unusual pore‐water profiles in the macroalgal sediments suggest the presence of sulfur‐driven anoxic nitrification of NH4+ to NO3− and N2. A benthic N budget showed that combined denitrification and coupled nitrification–denitrification accounted approximately 96% of the N2 production, while DNRA accounted for 9% of total NO3− reduction pathways in the Noosa River Estuary. The macroalgae habitat contributed 76% of total N removal via N2 production and 65% of N retention via DNRA, despite accounting for only 25% of the total surface area. We show a strong relationship between seagrass and macroalgae area and N2 production (r2 = 0.8; p < 0.01), and as such, the capacity to mitigate reactive N loads in estuaries may decrease with the large‐scale loss of seagrass and other vegetated habitats.