This paper presents a modeling study conducted to evaluate tidal-stream energy extraction and its associated potential environmental impacts using a three-dimensional unstructured-grid coastal ocean model, which was coupled with a water-quality model and a tidal-turbine module. The unstructured-grid tidal-turbine model was first applied to investigate the effects of different tidal farm configurations on tidal energy extraction and the effects on the system flow field as well as biogeochemical transport processes in an idealized bay with a narrow channel connecting to the coastal ocean. Model results indicated that a large number of turbines are required to extract the maximum tidal energy and cause significant reduction in the volume flux. Model results also showed that tidal energy extraction has a greater effect on flushing time than on volume flux reduction. In the idealized tidal channel, a 10% reduction of volume flux caused by tidal energy extraction would result in an approximately 50% increase in flushing time in the bay. The flushing time increases exponentially as a function of flow reduction. A water-quality model simulation was conducted to investigate the dynamic effect of tidal energy extraction on water quality in a stratified tidal channel and estuary system. Model results showed that deployment of tidal turbines in the channel would increase vertical mixing in the bay. However, extraction of tidal energy also would result in a decrease in bottom dissolved oxygen in the bay during summer, which may cause hypoxia in fish. Finally, the tidal-turbine model was applied to a real-world site in Puget Sound a highly energetic estuary on the US Pacific Northwest coast. The model application of tidal energy extraction in Puget Sound demonstrated the advantage of using an unstructured-grid modeling approach with high grid resolution near the tidal-turbine farm within a large model domain. This study showed that a numerical model can be a useful tool for assessing tidal energy extraction and its environmental impacts and for informing regulatory and policy processes for tidal energy development.