Indirect effects occur when two species interact through one or more intermediate species. Theoretical studies indicate that indirect interactions between two prey types that share common predators can be positive, neutral or negative. We document a positive indirect interaction between different types of prey fish on coral reefs in Australia. A high abundance of one type of prey fish (cardinalfishes: Apogonidae) resulted in higher recruitment, abundance and species richness of other prey fish. Our evidence indicates that these effects were not due to differential settlement but were instead due to differential post-settlement predation. We hypothesize that resident piscivores altered their foraging behaviour by concentrating on highly abundant cardinal-fish when they were present, leaving recruits of other species relatively unmolested. Indirect effects were evident within 48 h of settlement and persisted throughout the 42-day experiment, highlighting the importance of early post-settlement processes in these communities.