The spiny damselfish, Acanthochromis polyacanthus, is widely distributed throughout the Indo-Australian archipelago. However, this species lacks a larval dispersal stage and shows genetic differentiation between populations from closely spaced reefs. To investigate the dispersal strategy of this unique species, we used microsatellite markers to determine genetic relatedness at five dispersal scales: within broods of juveniles, between adults within a collection site (~30 m2), between sites on single reefs, between nearby reefs in a reef cluster, and between reef clusters. We sampled broods of juveniles and adults from seven reefs in the Capricorn-Bunker and Swain groups of the Great Barrier Reef. We found that extra-pair mating is rare and juveniles remain with their parents until fledged. Adults from single sites are less related than broods but more related than expected by chance. However, there is no evidence of inbreeding suggesting the existence of assortative mating and/or adult migration. Genetic differences were found between all of the reefs tested except between Heron and Sykes reefs, which are separated only by a 2-km area of shallow water (less than 10 m). There was a strong correlation between genetic distance, geographical distance and water depth. Apparently, under present-day conditions spiny damselfish populations are connected only between sites of shallow water, through dispersal of adults over short distances. Assuming that dispersal behaviour has not changed, the broad distribution of A. polyacanthus as a species is likely based on historical colonization patterns when reefs were connected by shallow water at times of lower sea levels.