Abstract Urea is a crucial nitrogen nutrient source for algae with the potential to stimulate harmful algal blooms, but the molecular machinery underpinning urea uptake and assimilation by algae is not fully understood. Urease (URE) is commonly regarded as the responsible enzyme, but the urea amidolyase (UAD) system, albeit known to exist, has hardly been studied. Here, the phylogenetic distribution, expression patterns, and functional roles of UAD system are examined, which comprises subunits DUR1 , DUR2 , and DUR3 . We find a widespread occurrence of UAD, spanning four major phytoplankton lineages, and potentially independent evolution of URE and lineage-specific loss. Besides, a stronger regulation of UAD by environmental nitrogen concentrations compared to URE is uncovered in both global ocean and local dinoflagellate-dominant bloom events. CRISPR-based mutation in Chlamydomonas reinhardtii shows that subunit DUR2 is essential for urea utilization. DUR2 inactivation led to completely growth restriction and upregulation of DUR1 and DUR3A , suggesting its functional interaction with them. In contrast, DUR3B inactivation only partially halted urea uptake and cell growth but significantly reduced gene expression across the entire UAD system. These findings not only reveal the crucial role of DUR2 in urea utilization in C. reinhardtii and potentially in many other algae, but also suggest DUR2 to be a more suitable indicator of urea utilization than urease, and underscore the importance to consider both URE and UAD enzyme systems when urea utilization by algae is assessed.