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Bottom-towed fishing gears produce significant amounts of seafood globally but can result in seafloor habitat damage. Spatial closures provide an important option for mitigating benthic impacts, but their performance as a fisheries management policy depends on numerous factors, including how fish respond to habitat quality changes. Spatial fisheries management has largely focused on marine protected areas with static locations, overlooking dynamic spatial closures that change through time. To investigate the performance of dynamic closures, we develop a spatial fishery model with fishing-induced habitat damage, where habitat quality can affect both fish productivity and movement. We find that dynamic spatial closures often achieve greater harvest and habitat protection than fixed marine protected areas or conventional nonspatial maximum sustainable yield management, especially under strong habitat–stock interactions. Determining optimal dynamic spatial closures may require considerable information, but we find that simple policies of fixed-schedule rotating closures also perform well. Dynamic spatial closures have received less attention as fisheries management tools, and our results demonstrate their potential value for addressing both harvest and habitat impacts from fishing.