While the use of diatoms in the monitoring and assessment of aquatic habitats is common place, their use in water reservoirs is limited and studies remains scarce. To improve the reliability and use of diatoms as bioindicators in reservoirs more studies tracking current environmental change are required. In south east Queensland a unique opportunity presented to utilise sediment diatom assemblage to monitor a stream environment transition to a lacustrine environment following completion of a new dam wall and subsequent filling of the new reservoir in January 2011 after heavy rainfall. The construction of water reservoirs changes the hydrodynamics and physiochemical parameters of the aquatic habitats significantly. Diatoms should be effective bio-indicators of these changes. Results demonstrated a distinct and rapid shift in diatom taxa from benthic to planktonic forms as a result of the stream impoundment in the sediment record. Benthic diatom taxa including Halamphora coffeaeformis (C.Agardh) Levkov and Bacillaria paxillifera (O.F.Müller) T.Marsson, dominated the stream environment. Following transition to a lacustrine environment, planktonic diatoms taxa including Aulacoseira granulata (Ehrenberg) Simonsen, Aulacoseira pusilla Meister, and Ulnaria acus (Kützing) M.Aboal became dominant. The sediment diatom assemblages clearly reacted to the change in water depth associated with the reservoir filling. This outcome provides a valuable insight into the historic diatom assemblages and demonstrates that diatoms can provide a low cost effective method of estimating sedimentation rates in subtropical Australian reservoirs.