Terpios hoshinota, an encrusting cyanosponge, is known as a strong substrate competitor of reef-building corals that kills encountered coral by overgrowth. Terpios outbreaks cause significant declines in living coral cover in Indo-Pacific coral reefs, with the damage usually lasting for decades. Recent studies show that there are morphological transformations at a sponge's growth front when confronting corals. Whether these morphological transformations at coral contacts are involved with physiological outperformance (e.g., higher metabolic activity or nutritional status) over other portions of Terpios remains equivocal. In this study, we compared the indicators of photosynthetic capability and nitrogen status of a sponge-cyanobacteria association at proximal, middle, and distal portions of opponent corals. Terpios tissues in contact with corals displayed significant increases in photosynthetic oxygen production (ca. 61%), the δ13C value (ca. 4%), free proteinogenic amino acid content (ca. 85%), and Gln/Glu ratio (ca. 115%) compared to middle and distal parts of the sponge. In contrast, the maximum quantum yield (Fv/Fm), which is the indicator usually used to represent the integrity of photosystem II, of cyanobacteria photosynthesis was low (0.256~0.319) and showed an inverse trend of higher values in the distal portion of the sponge that might be due to high and variable levels of cyanobacterial phycocyanin. The inconsistent results between photosynthetic oxygen production and Fv/Fm values indicated that maximum quantum yields might not be a suitable indicator to represent the photosynthetic function of the Terpios-cyanobacteria association. Our data conclusively suggest that Terpios hoshinota competes with opponent corals not only by the morphological transformation of the sponge-cyanobacteria association but also by physiological outperformance in accumulating resources for the battle.