Hatchery production of European flat oyster (Ostrea edulis) is erratic and is dependent upon broodstock conditioning and larval rearing conditions, including nutrition at both steps. In this study, the combined effects of broodstock and larval diets upon larval growth, survival, competence and metamorphosis and fatty acid and sterol compositions were studied. Four-year-old broodstock were conditioned in 700-L flow-through tanks (50 oysters per tank) at 19 °C and subjected to three dietary conditions in duplicate during 19 weeks. Two mixed diets were supplied continuously at an equivalent of 2 billion cells per day per oyster: Rhodomonas salina + Chaetoceros neogracile (Rs + C) or R. salina + Thalassiosira weissflogii (Rs + Tw), and the third condition was unfed. Samples of microalgae, released larvae (day 0), and larvae at day 9 were collected, and fatty acids (FAs) in neutral (NL) and polar lipids (PL) and sterols were analysed. Larval collection was continuous to estimate numbers of larvae released, which was dependent upon broodstock diet. Oysters fed Rs + C doubled the number of larvae compared to those receiving Rs + Tw - 47.8 compared to 23.1 million larvae, respectively. FAs in NL and PL, as well as sterol composition of released larvae, differed significantly depending upon broodstock diet. Larvae were reared in 5-L cylinders in a flow-through system at 22 °C. Larvae were subsequently fed different single and mixed microalgal diets in triplicate, incorporating Tisochrysis lutea (T), C. neogracile (C), and Diacronema lutheri (D), at a constant concentration of 1500 μm3 μL−1 at the outlet of the rearing tank. Larval growth responded to both broodstock and larval diets; whereas, larval survival, competence, and settlement were influenced by both factors and their interactions. Broodstock receiving Rs + C produced larvae that grew faster (5.6–10.8 μm day−1) than larvae from the other broodstock dietary regimes (4.6–9.6 μm day−1). Larvae from fed broodstock (Rs + C or Rs + Tw) receiving the bi-specific diet T + C exhibited the highest growth rate (9.5–10.8 μm day−1); whereas, those fed the single diet D. lutheri exhibited low growth and competence (4.6–6.1 μm day−1; 4%) on day 9. Fed larvae originating from broodstock fed Rs + C exhibited better survival (92–97%) than those released by broodstock fed Rs + Tw (70–93%). Except for those supplied with T, fed larvae exhibited higher settlement when originating from broodstock receiving Rs + C. On day 9, FA and sterol compositions of larvae reflected the biochemical content of the larval diets. Overall, the best results were observed in larvae fed T + C originating from broodstock fed Rs + C.