The small, genetically distinct population of Indo-Pacific bottlenose dolphins (Tursiops aduncus) in Port Stephens, New South Wales (NSW), is the target of the largest dolphin-watching industry in Australia and is located within the Port Stephens - Great Lakes Marine Park that was created in 2005. The effects of this industry have been identified as of significant management importance by the Marine Parks Authority NSW. Accordingly, the impact of commercial dolphin-watching boats was investigated from boat-based surveys from August 2008 to August 2009. Presence of dolphin-watching boats altered both the dolphins' behavioural states and activity budgets. Dolphins spent 66.5% less time feeding and 44.2% less time socialising, spent four times more milling, and were never observed to rest in the presence of dolphin-watching boats. Moreover, dolphin groups were more cohesive during dolphin-watching boat encounters and dolphins tended to avoid tour boats. These effects were exacerbated as the number of boats increased and the distance from boats decreased. The rate of approach was high with boats approaching each dolphin group three times per day in winter and six times in summer. Moreover, groups of dolphins with newborns were approached closer than state regulated minimum approach distances in nine out of ten encounters. Globally, dolphin-watching industries frequent small resident groups of coastal dolphins and effects are likely to be similar. We suggest that existing controls are inadequate and that these together with additional regulations be enforced by a regular presence of authorities. We suggest no more than one dolphin-watching boat within 50. m of a group of dolphins, or 100. m if calves are present. Operating times of dolphin-watching boats should be restricted in numbers after 1pm, i.e., during preferred foraging times for dolphins. Additionally, exclusion zones should be considered to reduce pressure on dolphins undertaking critical activities such as feeding and resting. We recommend monitoring the effectiveness of new regulations that are incorporated in the reviewed marine park management plan in 2012 for a period of three years.