The role of sediment–bound organic phosphorus (Po) as an additional nutrient source is a component of internal P budgets in lake system that is usually neglected. Here we examined the relative importance of sediment Po to internal P load and the role of bioavailable Po in algal growth in Lake Erhai, China. Lake Erhai sediment extractable Po accounted for 11–43% (27% average) of extractable total P, and bioavailable Po accounted for 21–66% (40%) of Po. The massive storage of bioavailable Po represents an important form of available P, essential to internal loads. The bioavailable Po includes mainnly labile monoester P and diester P was identified in the sequential extractions by H2O, NaHCO3, NaOH, and HCl. 40% of H2O−Po, 39% of NaHCO3−Po, 43% of NaOH−Po, and 56% of HCl−Po can be hydrolyzed to labile monoester and diester P, suggesting that the bioavailability of Po fractions was in decreasing order as follows: HCl−Po > NaOH−Po > H2O−Po > NaHCO3−Po. It is implied that traditional sequential fractionation of Po might overestimate the availability of labile Po in sediments. Furthermore, analysis of the environmental processes of bioavailable Po showed that the stabler structure of dissloved organic matter (DOM) alleviated the degradation and release of diester P, abundant alkaline phosphatase due to higher algal biomass promoted the degradation of diester P. The stability of DOM structure and the degradation of diester P might responsible for the spatial differences of labile monoester P. The biogeochemical cycle of bioavailable Po replenishs available P pools in overlying water and further facilitate algal growth during the algal blooms. Therefore, to control the algal blooms in Lake Erhai, an effective action is urgently required to reduce the accumulation of Po in sediments and interrupt the supply cycle of bioavailable Po to algal growth.