A finite-difference discrete-ordinate iterative method developed to solve the three-dimensional (3D) radiative transfer equation is described. The method is applicable to a volume of ocean with position dependent volumetric absorption and scattering coefficients. Input quantities include sun position and sky radiance distribution, scattering phase function, and absorbing, reflecting, or emitting objects within the ocean volume. A solution of the one-dimensional radiative transfer equation is used to provide boundary values for the 3D solutions. Radiance distributions are calculated which model recent ocean radiance measurements showing ship shadow effects. The results are compared.