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Marine sponges constitute major parts of coral reefs and deep-water communities. They often harbour high amounts of phylogenetically and physiologically diverse microbes, which are so far poorly characterized. Many of these sponges regulate their internal oxygen concentration by modulating their ventilation behaviour providing a suitable habitat for both aerobic and anaerobic microbes. In the present study, both aerobic (nitrification) and anaerobic (denitrification, anammox) microbial processes of the nitrogen cycle were quantified in the sponge Geodia barretti and possible involved microbes were identified by molecular techniques. Nitrification rates of 566 nmol N cm−3 sponge day−1 were obtained when monitoring the production of nitrite and nitrate. In support of this finding, ammonia-oxidizing Archaea (crenarchaeotes) were found by amplification of the amoA gene, and nitrite-oxidizing bacteria of the genus Nitrospira were detected based on rRNA gene analyses. Incubation experiments with stable isotopes (15NO3- and 15NH4+) revealed denitrification and anaerobic ammonium oxidation (anammox) rates of 92 nmol N cm−3 sponge day−1 and 3 nmol N cm−3 sponge day−1 respectively. Accordingly, sequences closely related to ‘Candidatus Scalindua sorokinii’ and ‘Candidatus Scalindua brodae’ were detected in 16S rRNA gene libraries. The amplification of the nirS gene revealed the presence of denitrifiers, likely belonging to the Betaproteobacteria. This is the first proof of anammox and denitrification in the same animal host, and the first proof of anammox and denitrification in sponges. The close and complex interactions of aerobic, anaerobic, autotrophic and heterotrophic microbial processes are fuelled by metabolic waste products of the sponge host, and enable efficient utilization and recirculation of nutrients within the sponge–microbe system. Since denitrification and anammox remove inorganic nitrogen from the environment, sponges may function as so far unrecognized nitrogen sinks in the ocean. In certain marine environments with high sponge cover, sponge-mediated nitrogen mineralization processes might even be more important than sediment processes.