Bioinsecticides based on the bacterium Bacillus thuringiensis subsp. israelensis (Bti) are increasingly being applied directly into aquatic compartments to control nuisance mosquitoes and blackflies and are generally considered environmentally friendly alternatives to synthetic insecticides. Bti-based insecticides are considered highly selective, being Diptera-specific, and supposedly decompose rapidly in the environment. Nevertheless, their safety to non-target species and freshwater ecosystems has been questioned by recent studies, which in fact document possible indirect effects in aquatic food webs such as the decrease of prey availability to predators. This work aimed to evaluate the potential effects of a Bti-based insecticide (VectoBac® 12AS) on a freshwater macroinvertebrate community and on stream ecological functions by using artificial microcosm streams. Artificial microcosm streams were colonized with a macroinvertebrate community plus periphyton collected in a stream together with Alnus glutinosa leaf packs. They were exposed for 7 days to different Bti treatments (0, 12, 120, 1200 μg/L), which are within the recommended concentrations of application in aquatic compartments for blackfly and mosquito control. Besides invertebrate community structure and abundance, effects were evaluated regarding leaf decomposition and primary production as measures of ecosystem functioning. Community structure was significantly altered in all Bti treatments after 7 days of exposure, mostly due to a decline in chironomids, followed by oligochaetes, which both belong to the deposit-feeders’ functional group. Direct effects on oligochaetes are surprising and require further research. Also, reductions of leaf decomposition due to Bti-induced sublethal effects on shredders (reduced feeding) or mortality of chironomids (that can also feed on coarse organic matter) observed in our study, represent potential indirect effects of Bti in aquatic ecosystems. Our short-exposure experiment evidenced some negative effects on stream benthic invertebrate communities and on ecosystem functioning that must be considered whenever Bti is used in water bodies for blackfly or mosquito control programs.