The dinoflagellate genus Karenia is globally recognized for forming harmful algal blooms (HABs) that produce potent toxins, posing severe threats to marine ecosystems and fisheries. Among the 11 currently accepted species, eight have been recorded in Chinese coastal waters, yet the morphology, toxicity, and molecular physiology of many local strains remain poorly documented. Here, we established a clonal culture of Karenia papilionacea isolated from Qingdao (Yellow Sea, China), and characterized its morphology using light and scanning electron microscopy, as well as its phylogeny based on LSU rDNA sequences. Notably, small knobs on the left side of the apical structure complex were observed for the first time. Phylogenetic analyses placed the Yellow Sea strain in a distinct clade separate from other Chinese strains, with genetic distances of 0.002–0.011 (6–23 bp differences), suggesting regional divergence. Laboratory bioassays revealed significant lethal effects on rotifers, brine shrimp, and finfish, but minor impacts on brine shrimp egg hatching, confirming its toxigenic potential. To further explore its ecological adaptability, we investigated the growth and transcriptomic responses of K. papilionacea to four nitrogen sources: nitrate, ammonium, urea, and glycine. The alga grew across all treatments, with urea supporting the highest cell density. Comparative transcriptomic analysis across six pairwise comparisons identified between 411 and 10,636 differentially expressed genes, with 37.03% of assembled unigenes successfully annotated. Enrichment analysis highlighted key pathways—oxidative phosphorylation, steroid biosynthesis, and aminoacyl-tRNA biosynthesis—implicated in nitrogen assimilation, energy metabolism, and protein synthesis, revealing coordinated transcriptional reprogramming in response to nitrogen form. Together, this work provides the first record of K. papilionacea in northern China and integrates morphological, phylogenetic, toxicological, and transcriptomic data to advance understanding of its distribution, toxicity, and nitrogen utilization strategies. These findings offer a foundation for monitoring and risk assessment of this HAB-forming species in Chinese coastal waters.