The global degradation of coral reefs is having profound effects on the structure and species richness of associated reef fish assemblages. Historically, variation in the composition of fish communities has largely been attributed to factors affecting settlement of reef fish larvae. However, the mechanisms that determine how fish settlers respond to different stages of coral stress and the extent of coral loss on fish settlement are poorly understood. Here, we examined the effects of habitat degradation on fish settlement using a two-stage experimental approach. First, we employed laboratory choice experiments to test how settlers responded to early and terminal stages of coral degradation. We then quantified the settlement response of the whole reef fish assemblage in a field perturbation experiment. The laboratory choice experiments tested how juveniles from nine common Indo-Pacific fishes chose among live colonies, partially degraded colonies, and dead colonies with recent algal growth. Many species did not distinguish between live and partially degraded colonies, suggesting settlement patterns are resilient to the early stages of declining coral health. Several species preferred live or degraded corals, and none preferred to associate with dead, algal-covered colonies. In the field experiment, fish recruitment to coral colonies was monitored before and after the introduction of a coral predator (the crown-of-thorns starfish) and compared with undisturbed control colonies. Starfish reduced live coral cover by 95-100%, causing persistent negative effects on the recruitment of coral-associated fishes. Rapid reductions in new recruit abundance, greater numbers of unoccupied colonies and a shift in the recruit community structure from one dominated by coral-associated fishes before degradation to one predominantly composed of algal-associated fish species were observed. Our results suggest that while resistant to coral stress, coral death alters the process of replenishment of coral reef fish communities.