Pasture yield in dairy grazing systems is critical to supplying sufficient feed for milking cows and maintaining productivity. In the Australian dairy industry, ryegrass and clover are common grasses used in grazed pastures. Dairy shed effluent (DSE), the wastewater produced from washing down the dairy holding yards during and after milking, is generally managed through application to pasture as a fertilizer substitute/supplement following partial treatment in stabilization ponds. The aim of this study is to assess the benefits of applying sludge and supernatant collected from two-stage DSE pond systems to ryegrass pasture. A pot experiment was conducted which involved applying pond sludges and supernatant to soil seeded with ryegrass. The application rates of the pond by-products were set according to their labile (plant available) phosphorus content. Ryegrass yield and leachate generated from each of the pots were recorded, and samples were collected for analysis of nutrients and other parameters. The ryegrass grown in soil treated with pond sludge and supernatant yielded greater dry matter (DM) with higher nutrient content than untreated control pots. In addition, pots treated with pond sludge exhibited lower rates of phosphorus leaching from the soil compared with pots treated with supernatant. Thus, pond sludge retained more plant available phosphorus in soil than both the control and pond supernatant treatment. The potassium to calcium/magnesium ratios in the ryegrass in the pots treated with pond sludge and supernatant were below the recommended upper limit for grazing. Therefore, the application of pond sludges on the dairy paddocks was found to be superior to applying supernatant in terms of utilization and conservation of phosphorus within the dairy farm and presents low risks of groundwater pollution and grass tetany.