1. Like many ecosystem functions in marine and terrestrial environments, nutrient processing varies dramatically over small spatial scales, making efforts to apply findings within and across ecosystems challenging. In estuaries, information on the influence of habitat context on sediment nutrient cycling is lacking even though this is an important estuarine function with high societal value. 2. We collected triplicate intact sediment cores from restored oyster reefs located in different habitat contexts (adjacent to salt marshes, seagrass beds, and mudflats), as well as salt marshes, seagrass beds, and mudflats without reefs (controls). Sediment denitrification and fluxes of dissolved inorganic nitrogen were measured under ambient and experimentally elevated water column nitrate levels. 3. Under ambient nitrate, oyster reefs enhanced sediment denitrification by 18–275% over the controls, with highest rates of denitrification in the mudflat context. With experimentally elevated nitrate, the rate of denitrification was higher for oyster reefs compared to the controls in all contexts. This suggests that oyster reefs prime sediments to denitrify nitrate pulses by providing a labile carbon source for denitrifying bacteria. 4. There was a weak positive relationship between oyster density and denitrification under ambient nitrate concentrations and a positive relationship with denitrification that became negative beyond ~2400 individuals m−2 with elevated nitrate concentrations. The effect of the oyster reef on sediment denitrification was most pronounced in the mudflat context, due to the absence of other structured habitats and higher oyster density, compared to the other two habitat contexts investigated. 5. The consistency of denitrification efficiency across the habitats and lack of difference between habitats with reefs and those without (controls) suggests oyster-mediated denitrification is an effective sink for nitrogen in coastal systems. 6. Synthesis and applications. Our study indicates that oyster-mediated denitrification is dependent on the habitat context of the oyster reef, and variation in oyster density and the relative functional redundancy of oyster reefs where other structured habitats exist (e.g. seagrass and salt marshes) may explain this pattern. Efforts to model and predict ecosystem services provided through oyster reef restoration such as the removal of anthropogenically-derived nitrogen should incorporate how habitat context influences ecosystem functions.