Lipid classes, fatty acids (FAs), and stable carbon isotopes of FAs were used to investigate dietary sources of organic carbon for juvenile Atlantic cod Gadus morhua during settlement into eelgrass Zostera marina. Primary producers, epibenthic prey, zooplankton, and fish were collected from August to November 2002 in shallow (<10 m) eelgrass in Bonavista Bay, Newfoundland, Canada. Lipid data indicated that zooplankton (>80 µm) were associated with fresh organic material, while seston (5–80 µm) had high levels of bacterial FA and non-acyl lipids, typical of sedimentary material. Zooplankton, mysids, and amphipods showed a seasonal decrease in 22:6n-3 with a concomitant increased in the ubiquitous terrestrial indicators 18:2n-3 and 18:3n-3. Based on essential FA composition of prey, there was a decrease in the quality of food available to juvenile fish from August until November. Earlier (August) pelagic juveniles had higher levels of marine-sourced FA (22:6n-3) than late (November) arrivers. Further, in October and November settled juveniles had higher proportions of terrestrial FA biomarkers than pelagic cod, indicating an increased dietary terrestrial input at settlement. Isotopic evidence demonstrated that eelgrass was the most enriched (–14‰) source of organic carbon and supported multivariate FA analysis, confirming that eelgrass was not incorporated into the food web of juvenile cod. Increased terrestrial input of organic carbon coupled with low proportions of dietary essential FAs indicate that the functional significance of this habitat is refuge and not nutrition.