Ocean circulation off the west coast of the United States is driven by a variety of mechanisms, the most important of which are the seasonally varying local wind stress and coastal irregularities. Remote forcing is also important and expressed through the open boundary conditions. We use a nonhydrostatic, Dietrich/Center for Air-Sea Technology (DieCAST) ocean model to simulate the regional circulation in the vicinity of Monterey Bay, California. Satellite images often show a cyclonic eddy in the bay and an anticyclonic eddy outside the bay during spring and summer. We compare the simulation results with observed mooring and HF radar-derived velocity data. The coastal geometry plays an important role in the generation and movement of coastal eddies. Quantitative comparisons between hydrostatic and nonhydrostatic models are made to investigate the importance of the nonhydrostatic effects in coastal ocean simulation. The results show that both the Sur Ridge area and the Monterey Submarine Canyon contribute significantly to nonhydrostatic effects and small-scale features. The strong nonhydrostatic and small-scale features result from the California Undercurrent flows across sloping bathymetry and interactions with near-surface California Current in summer. Rapid changes in slope in the presence of strong flows cause vertical acceleration, which violates the hydrostatic approximation. Surface-trapped nonhydrostatic fronts also occur frequently in the shallow ocean during winter. These effects have seasonal variation and cannot be ignored in coastal ocean modeling with complex bathymetry.