[1] Observations of wave and sediment processes collected at two locations on the Atchafalaya inner shelf show that wave dissipation in shallow, muddy environments is strongly coupled to bed-sediment reworking by waves. During an energetic wave event (2 m significant wave height in 5 m water depth), acoustic backscatter records suggest that sediment in the surficial bed layer evolves from consolidated mud through liquefaction, fluid mud formation, and hindered settling to gelled, under-consolidated mud. Net swell dissipation increases steadily during the storm from negligible prestorm values, consistent with bed softening, but shows no correlation with detectable fluid mud layers. Remarkably, the maximum dissipation rate occurs poststorm, when no fluid mud layers are present. In the waning stage of the storm, the contribution of different wave-forcing processes to wave dissipation is analyzed using an inverse modeling approach based on a nonlinear three-wave interaction model. Although wave-mud interaction dominates dissipative processes, nonlinear three-wave interactions control the shape of the frequency distribution of the dissipation rate. In the wake of the storm, the viscosity values predicted by the inverse modeling converge toward measured values characteristic for gelled mud in a trend that is consistent with a fluid mud entering dewatering and consolidation stages.