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Habitat-forming invasive species have complex impacts on native communities. Positive above ground and negative below ground impacts are reported, suggesting that habitat-forming invasive species may affect community components differently. Furthermore, such effects may vary depending on the density of the invader. We determined the responses of community components to different densities of the invasive green alga Caulerpa taxifolia in southeastern Australia. Initially we investigated differences in soft-sediment faunal communities (above and below ground) across a biomass gradient at two invaded sites. Caulerpa taxifolia biomass was positively associated with the composition and abundance of the epifaunal community, but negatively correlated with the abundance of infauna. To examine the response of common community members in more detail, we caged two species of mollusk (the infaunal bivalve, Anadara trapezia and the epifaunal gastropod, Batillaria australis) across the same biomass gradient to determine lethal and sublethal effects of C. taxifolia biomass on individuals. Survivorship of A. trapezia was low when C. taxifolia was above 300 g m−2. Negative sublethal effects were also density-dependent with A. trapezia tissue weight being lowest above this same C. taxifolia biomass. The proportion of B. australis surviving was unaffected by C. taxifolia biomass. However, the total number of live B. australis recovered in cages increased as C. taxifolia biomass increased, providing further evidence of positive density dependent effects (in line with the survey data) of C. taxifolia on epifauna. Finally, we removed C. taxifolia from plots of differing C. taxifolia biomass and followed community change for 5 months. Community change following C. taxifolia removal was also density dependent as recovery 5 months post-removal depended on the initial biomass of C. taxifolia, suggesting a lag in the recovery of communities due to residual environmental effects post-removal (i.e. hysteresis). We have shown that the effects of a habitat-forming invasive species are biomass dependent and also affect community components differently, suggesting that, globally, the impact of these types of invaders may be context dependent.