Coastal eutrophication and its associated harmful algal blooms have emerged as one of the most severe environmental problems worldwide. Seaweed cultivation has been widely encouraged to control eutrophication and algal blooms. Among them, cultivated kelp (Saccharina japonica) dominates primarily by production and area. However, the responses of water quality and phytoplankton community to kelp farming remain unclear. Here, thirteen cruises were conducted in the kelp farms and control areas in the turbid, highly eutrophic Xiangshan Bay of the East China Sea from 2008 to 2015. Results indicated that kelp cultivation slightly increased dissolved oxygen and pH, but reduced dissolved inorganic nitrogen and phosphorus. We estimated that kelp harvesting would remove 297 t of nitrogen and 42 t of phosphorus from this bay annually. Because of decreased flow velocity, turbulence, and sediment resuspension, kelp farming greatly reduced suspended solids and increased transparency, resulting in increases in phytoplankton chlorophyll a and abundance. Additionally, kelp farming appreciably increased phytoplankton species number, Marglef richness, and Shannon–Wiener diversity indices by 51.6%, 40.1%, and 13.1%, respectively. Analysis of similarity and similarity percentages demonstrated that phytoplankton community composition differed significantly between the farm and control area, which was mostly attributed to long-chained diatoms and single-celled dinoflagellates. However, after the kelp harvesting, all measurements of water quality and phytoplankton biomass, diversity, and community composition exhibited no significant difference. Our study highlights that kelp cultivation alleviates eutrophication and acidification and enhances phytoplankton diversity, thus providing guidance for macroalgal aquaculture and remediation in eutrophic waters.