In streams, coarse particulate organic matter (CPOM) acts as a substrate for microbial activity, which promotes nutrient retention. However, in urban areas, increased peak flows within streams lead to decreased retention of CPOM. The aim of this study was to investigate whether the reintroduction of CPOM, in the form of leaf litter, into a degraded urban stream would increase biofilm activity and phosphorus retention, two ecosystem functions that reflect the integrity of the ecosystem. Stream metabolism and nutrient retention were assessed in treated (T) and control (C) channels of the Torrens River Catchment, South Australia, before and after CPOM addition. Gross primary production and community respiration (CR) were measured as oxygen production and consumption within benthic chambers. Phosphorus retention was measured through a series of short-term filterable reactive phosphorus (FRP) addition experiments. Before CPOM addition, there were no differences in CR, but C retained 6.8% more FRP than T. After CPOM addition, CR was greater in T than in C (572 and 276 mg O2·m−2·day−1, respectively), and T retained 7.7% more FRP than C. The increase in FRP retention in T compared to C was attributed to phosphorus limitation of the CPOM and increased demand for phosphorus of the attached microbial heterotrophic community. The reintroduction of CPOM into degraded streams will be an important step in the restoration of stream metabolism and nutrient retention. Maintenance of CPOM may be achieved through restoration of riparian vegetation, a reduction in the increased peak flows, and rehabilitation of stream morphology.