Forage addition (FA) to starter diets has favorable effects on ruminal development but may reduce starter intake and growth. The latter reductions may be related to an inability of the insufficiently developed ruminal microbiota to effectively use forage. Based on the crucial role of phosphorus (P) for ruminal microbial activity and the overall insufficient knowledge on the interaction of dietary fiber and P in young calves, this study hypothesized that limited availability of dietary P may contribute to the reduced intake and performance in forage-supplemented calves. Consequently, the current study evaluated the effects of forage feeding level (no alfalfa hay [NAH] vs. 100 g of chopped alfalfa hay [AH] per kg of starter) at either 0.4% P (0.4P) or 0.8% P (0.8P) on growth performance, digestibility of nutrients, ruminal fermentation, and microbial protein synthesis (MPS). Forty-eight female Holstein calves (39.2 ± 3.7 kg) were assigned randomly to the four experimental treatments including NAH-0.4P, NAH-0.8P, AH-0.4P, and AH-0.8P (n = 12, each) during the pre-weaning (d 3 to 53) and post-weaning periods (d 54 to 73). The P contents were 0.41%, 0.84%, 0.42%, and 0.82%, and phytate-P contents were 0.25%, 0.26%, 0.28%, and 0.29% for the experimental treatments cited above, respectively. Milk feeding schedule was identical among treatments and calves had ad libitum access to water and starters throughout the experiment. Based on FA × P level interactions, the least and greatest starter intakes pre-weaning were observed in AH-0.4P and AH-0.8P, respectively. Compared to other groups, calves in AH-0.8P had greater average daily gain during pre-weaning and post-weaning (P < 0.05), greater body weight and higher withers height at weaning and the end of experiment (P < 0.05), higher hip height at weaning (P = 0.021), and greater urinary excretion of purine derivatives (PD; P = 0.045), the latter indicating improved microbial protein synthesis (P = 0.045). Feeding AH diet to calves increased ruminal acetate concentration (pre-weaning; P = 0.014), reduced ruminal propionate concentration (pre-weaning; P = 0.033), and tended to decrease ruminal butyrate concentration (pre-weaning; P = 0.057) and increase ruminal pH (P = 0.074) when compared to NAH-fed calves. A level of 0.8P vs. 0.4P increased organic matter (P = 0.041) and neutral detergent fiber digestibility (P = 0.038), increased total short chain fatty acid production in the rumen pre- and post-weaning (P < 0.05); whereas, ruminal ammonia nitrogen concentration and urinary nitrogen excretion were decreased by 0.8P (P < 0.05). It is concluded that FA to starter diets has a high potential to improve growth performance in young dairy calves. However, currently, recommended dietary P levels of approximately 0.45% may be insufficient to support fiber digestibility, microbial protein synthesis and growth, especially pre-weaning, when forage-containing starters are high in phytate-P.