A three dimensional hydrodynamic and suspended sediment transport model (HYDROTAM-3) has been developed and applied to Fethiye Bay. Model can simulate the transport processes due to tidal or nontidal forcing which may be barotropic or baroclinic. The Boussinesq approximation, i.e. the density differences are neglected unless the differences are multiplied by the gravity, is the only simplifying assumption in the model. The model is also capable of computing suspended sediment distributions, amount of eroded and deposited sediment. It is a composite finite difference, finite element model. At three Stations in the Bay, continuous measurements of velocity throughout the water depth and water level were taken for 27 days. Model predictions are in good agreement with the field data.