By the consumption of algae, parrotfishes open space for young coral settlement and growth, thus playing a central role on the maintenance of coral reefs. However, juvenile parrotfish ecology is often overlooked due to the difficulty discerning species during this phase. Herein, we present the first attempt to investigate changes in habitat use and diet that happen to juveniles of the Redeye parrotfish Sparisoma axillare, focusing on four zones within an algal-dominated reef: the macroalgal beds, back reef, reef flat, and fore reef. Smaller S. axillare juveniles (<5 cm) preferred to inhabit the macroalgal beds and the reef flat, whereas juveniles larger than 5 cm were more abundant in the back and fore reefs due to distinct post-settlement habitat conditions. Aggressive interactions with the territorial damselfish Stegastes fuscus were the primary driving factor of juvenile distribution and feeding rates. Attack rates increased with juvenile size and the lowest bite rates were observed in zones with higher densities of territorial damselfish. In previous studies, the persistence of parrotfish recruits in habitats dominated by damselfish was reduced, but newly settled parrotfish occurred more densely within the damselfish domain by behaving as a cryptic reef fish. As these juveniles grew, their bite rates increased, a change associated with a shift from cryptic to roving behavior. Feeding preferences were determined by substrate cover, where juveniles fed on available food sources in each habitat. Juveniles relied on jointed calcareous algae in habitats dominated by these algae, a pattern not observed for thick leathery algae. Filamentous algae were the preferred food for smaller fish; for individuals greater than 10 cm, a higher ingestion of sand was observed. Most studies evaluating the functional role of parrotfish do not consider species feeding preferences. However, the potential for a species to turn an impacted reef back to a coral-dominated phase is influenced by their food selection, which is dependent on the algal species composition.