Degradation of natural habitats due to urbanization is a major cause of biodiversity loss. Anthropogenic impacts can drive phase shifts from productive, complex ecosystems to less desirable, less diverse systems that provide fewer services. Macroalgae are the dominant habitat-forming organisms on temperate coastlines, providing habitat and food to entire communities. In recent decades, there has been a decline in macroalgal cover along some urbanised shorelines, leading to a shift from diverse algal forests to more simple turf algae or barren habitats. Phyllospora comosa, a major habitat forming macroalga in south-eastern Australia, has disappeared from the urban shores of Sydney. Its disappearance is coincident with heavy sewage outfall discharges along the metropolitan coast during 1970s and 1980s. Despite significant improvements in water-quality since that time, Phyllospora has not re-established. We experimentally transplanted adult Phyllospora into two rocky reefs in the Sydney metropolitan region to examine the model that Sydney is now suitable for the survival and recruitment of Phyllospora and thus assess the possibility of restoring Phyllospora back onto reefs where it was once abundant. Survival of transplanted individuals was high overall, but also spatially variable: at one site most individuals were grazed, while at the other site survival was similar to undisturbed algae and procedural controls. Transplanted algae reproduced and recruitment rates were higher than in natural populations at one experimental site, with high survival of new recruits after almost 18 months. Low supply and settlement success of propagules in the absence of adults and herbivory (in some places) emerge as three potential processes that may have been preventing natural re-establishment of this alga. Understanding of the processes and interactions that shape this system are necessary to provide ecologically sensible goals and the information needed to successfully restore these underwater forests.