The fate and toxicity of a polyethoxylated tallowamine (POEA) surfactant system, MON 0818, was evaluated in water–sediment microcosms during a 4-d laboratory study. A surfactant solution of 8 mg l⁻¹ nominal concentration was added to each of nine 72-l aquaria with or without a 3-cm layer of one of two natural sediments (total organic carbon (TOC) 1.5% or 3.0%). Control well water was added to each of nine additional 72-l aquaria with or without sediment. Water samples were collected from the microcosms after 2, 6, 24, 48, 72, and 96 h of aging to conduct 48-h toxicity tests with Daphnia magna and to determine surfactant concentrations. Elevated mortality of D. magna (43–83%) was observed in overlying water sampled from water-only microcosms throughout the 96-h aging period, whereas elevated mortality (23–97%) was only observed in overlying water sampled from water–sediment microcosms during the first 24 h of aging. Measured concentrations of MON 0818 in water-only microcosms remained relatively constant (4–6 mg l⁻¹) during the 96-h period, whereas the concentrations in overlying water from microcosms containing either of the two types of sediment dissipated rapidly, with half-lives of 13 h in the 3.0% TOC sediment and 18 h in the 1.5% TOC sediment. Both toxicity and the concentration of MON 0818 in overlying water decreased more rapidly in microcosms containing sediment with the higher percent TOC and clay and with a higher microbial biomass. Mortality of D. magna was significantly correlated with surfactant concentrations in the overlying water. These results indicate that the toxicity of the POEA surfactant in water rapidly declines in the presence of sediment due to a reduction in the surfactant concentration in the overlying water above the sediment.