Understanding organismal responses to environmental change is a central goal of biology with profound implications for the conservation of biodiversity. Widespread evidence of epigenetic modifications in response to environmental stress, including those inherited across generations, has led to considerable speculation about their role in organismal responses to environmental change. Yet, the magnitude and fitness consequences of epigenetic marks carried beyond maternal inheritance are largely unknown. Here, we tested how transgenerational epigenetic inheritance (TEI) shapes the phenotypic response of Daphnia clones to the environmental stressor Microcystis. We split individuals from each of eight genotypes into exposure and control treatments (P0 generation) and tracked the fitness of their descendants to the F3 generation. We found transgenerational epigenetic exposure to Microcystis led to reduced survival and growth rates and no consistent effect on offspring production. TEI was associated with increases in trait variance, suggesting the potential for heritable bet hedging driven by TEI. Taken together, our results demonstrate that TEI causes substantial—but not adaptive—trait shifts, suggesting transgenerational adaptive plasticity may be rare.