Biotransformation plays a crucial role in regulating the bioaccumulation potential and toxicity of organic compounds in organisms but is, in general, poorly understood for emerging contaminants. Here we have used diclofenac as a model compound to study the impact of biotransformation on the bioaccumulation potential and toxicity in two keystone aquatic invertebrates: Gammarus pulex and Hyalella azteca. In both species, diclofenac was transformed into several oxidation products and conjugates, including two novel products, i.e. diclofenac taurine conjugate (DCF-M403) and unexpected diclofenac methyl ester (DCF-M310.03). The ratios of biotransformation products to parent compound were 12-17 for DCF-M403 and 0.01-0.7 for DCF-M310.03 after 24 h exposure. Bioconcentration factors (BCFs) of diclofenac were 0.5 and 3.2 L kg ww^-1 in H. azteca and G. pulex, respectively, whereas BCFs of DCF-M310.03 was 164.5 L kg ww^-1 and 104.7 L kg ww^-1, respectively, representing a 25 to 110-fold increase. Acute toxicity of DCF-M310.03 was also higher than the parent compound in both species, which correlated well with the increased bioconcentration potential. The LC50 of diclofenac in H. azteca was 216 mg L^-1, while that of metabolite DCF-M310.03 was reduced to only 0.53 mg L^-1, representing a 430-fold increase in acute toxicity compared to diclofenac. DCF-M403 is less toxic than its parent compound towards H. azteca, which may be linked to its slightly lower hydrophobicity. Furthermore, the transformation of diclofenac to its methyl ester derivative was explored in crude invertebrate extracts spiked with an S-adenosylmethionine cofactor, revealing possible catalysis by an S-adenosylmethionine-dependent -carboxylic acid methyltransferase. Methylation of diclofenac was further detected in fish hepatocytes and human urine, indicating a broader relevance. Therefore, potentially methylated metabolites of polar contaminants should be considered for a comprehensive risk assessment in the future.