Constructing underground reservoirs has emerged as a crucial strategy to address the shortage of fresh water in Rizhao, Shandong Province, China. However, the water quality, microbial community composition, and biogeochemical cycling of nutrients in underground reservoirs compared to raw water remain unknown. To unveil the characteristics of microbial community structures and their nitrogen cycling metabolic potential in coastal underground reservoirs, we utilized a functional gene array (GeoChip 5.0) in conjunction with high-throughput sequencing of 16S rRNA and 18S rRNA genes. Our findings indicate that the water quality in the underground reservoir exhibits a certain degree of eutrophication compared to raw water, with higher concentrations of TN, TP, NO₃⁻N, NO₂⁻-N, and Chl a, but lower concentrations of DO and NH₄⁺-N. The alpha diversity of bacterial and microeukaryotic communities was significantly lower in the underground reservoir. The bacterial community presented a stronger correlation with environmental factors than the microeukaryotic community. Regarding the relative abundance of bacterial communities, Gammaproteobacteria dominated the bacterial community in raw water, while Gammaproteobacteria and Alphaproteobacteria dominated the bacterial community in underground reservoir water. Additionally, the relative abundance of Nitrospirae was noticeably higher in the underground reservoir water. Moreover, we found significantly higher sequence abundance of the archaea Thaumarchaeota in the underground reservoir. Furthermore, our analysis revealed that, except for the amoA functional gene, which significantly increased the metabolic potential of nitrification, the metabolic potential of other microbial nitrogen functional genes was significantly reduced. This reduction may contribute to the lower concentration of NH₄⁺-N in the underground reservoir. This study provides a comprehensive understanding of the microbial community characteristics and their nitrogen cycling metabolic potential in underground reservoirs. It serves as a valuable reference for water source selection, the formulation of water quality assurance measures, and the construction and management of underground reservoirs for subsequent impounding.