Disturbance can result in the fragmentation and/or loss of suitable habitat, both of which can have important consequences for survival, species interactions, and resulting patterns of local diversity. However, effects of habitat loss and fragmentation are typically confounded during disturbance events, and previous attempts to determine their relative significance have proved ineffective. Here we experimentally manipulated live coral habitats to examine the potential independent and interactive effects of habitat loss and fragmentation on survival, abundance, and species richness of recruitment-stage, coral-associated reef fishes. Loss of 75% of live coral from experimental reefs resulted in low survival of a coral-associated damselfish and low abundance and richness of other recruits 16 weeks after habitat manipulations. In contrast, fragmentation had positive effects on damselfish survival and resulted in greater abundance and species richness of other recruits. We hypothesize that spacing of habitat through fragmentation weakens competition within and among species. Comparison of effect sizes over the course of the study period revealed that, in the first six weeks following habitat manipulations, the positive effects of fragmentation were at least four times stronger than the effects of habitat loss. This initial positive effect of fragmentation attenuated considerably after 16 weeks, whereas the negative effects of habitat loss increased in strength over time. There was little indication that the amount of habitat influenced the magnitude of the habitat fragmentation effect. Numerous studies have reported dramatic declines in coral reef fish abundance and diversity in response to disturbances that cause the loss and fragmentation of coral habitats. Our results suggest that these declines occur as a result of habitat loss, not habitat fragmentation. Positive fragmentation effects may actually buffer against the negative effects of habitat loss and contribute to the resistance of reef fish populations to declines in coral cover.