Tropical reefs have experienced an unprecedented loss of live coral in the past few decades and the biodiversity of coral-dependent species is under threat. Many reef fish species decline in abundance as coral cover is lost, yet the mechanisms responsible for these losses are largely unknown. A commonly hypothesised cause of fish decline is the loss of shelter space between branches as dead corals become overgrown by algae. Here we tested this hypothesis by quantifying changes in predator-avoidance behaviour of a common damselfish, Pomacentrus moluccensis, before and after the death of their coral colony. Groups of P. moluccensis were placed on either healthy or degraded coral colonies, startled using a visual stimulus and their sheltering responses compared over a 7-week period. P. moluccensis stopped sheltering amongst the coral branches immediately following the death of the coral, despite the presence of ample shelter space. Instead, most individuals swam away from the dead coral, potentially increasing their exposure to predators. It appears that the presence of live coral rather than shelter per se is the necessary cue that elicits the appropriate behavioural response to potential predators. The disruption of this link poses an immediate threat to coral-associated fishes on degrading reefs.