Anaerobic digestion (AD) is considered as a widely applied technology for treatment of organic wastes and ammonia inhibition is a critical challenge for AD. Addition of biochar is known as a promising strategy for mitigating ammonia inhibition. The iron-modified biochar (Fe-ABC) possesses superior pore structure and iron could act as electron carriers, activating microbial activity, which could further alleviate the inhibition. However, mechanisms of blue algae biochar (ABC) and iron-modified biochar (Fe-ABC) affect the releasing of N-acyl homoserine lactone (AHLs) and thus lead to the mitigation of ammonia inhibition are unclear. Therefore, the current study explored how ABC and Fe-ABC improve AD performance under high ammonia levels. The results demonstrated that Fe-ABC could improve the secretion of quorum sensing signal molecules (mainly AHLs) under ammonia inhibition. The increase of AHLs was due to the relieving of ammonia stress and enriched functional anaerobic microorganisms by Fe-ABC. Moreover, increased AHLs by adding Fe-ABC could strengthen extracellular polymeric substances secretion. In addition, microbial community changes were also in agreement with the improved methane production under ammonia stress by increased AHLs. Furthermore, critical enzymes responsible for all stages of AD process were reinforced after introducing Fe-ABC. The current study could provide primary insights for mitigating ammonia inhibition by increased AHLs after adding Fe-ABC.