Reservoir operations affect both the quantity and quality of stored and discharged water. Hedging rules (HRs) are commonly used in water supply reservoir operations to ration water delivery and decrease water shortage risk. However, the increased carryover storage with hedging may aggravate reservoir eutrophication through complex effects on hydrodynamic, temperature, light, nutrient, and sediment conditions. The influencing mechanisms are unclear and require further investigation. This study applies a mathematical modeling approach to comparing the effects of standard operation policy (SOP) and HR, discussing the processes and driving factors, and exploring the relationship between water shortage and water quality indicators. We simulate reservoir operation by SOP and optimize HR to generate water supply schedules, and run a quasi-3D water quality model to simulate reservoir hydrodynamic conditions, nutrient cycles, water-sediment exchanges, and algal dynamics under various water supply schedules. The Danjiangkou Reservoir, the water source for China's South-North Water Transfer Project, is used as a case study. The HR for this reservoir decreases its water shortage risk from 22% under SOP to 8%. Modeling results find that the HR increases sediment phosphorus (P) release by 285.3 tons (5.7%) annually as a consequence of extended reservoir submerged area and aggravated hypolimnetic hypoxia. Increased P release can support algal growth, but this effect is set off by the enhancement of light limiting effect caused by higher storages under HR, consequently decreasing the annual mean chlorophyll a concentration in the deep reservoir by 18%. The HR also improves the horizontal mixing of water by changing the hydraulic retention time and flow velocity field, which mitigates algal bloom risks in the surrounding shallow-water zones but deteriorates water quality of the release to downstream. The water quality analysis offers implications for reservoir managers to coordinate their efforts in mitigating risks of water shortage and water quality degradation.