Globally, many coral reefs are degraded and demonstrate reduced coral cover and increased macroalgal abundance. While negative correlations between macroalgae and coral recruitment have commonly been documented, the mechanisms by which macroalgae affects recruitment have received little attention. Here we examined the effect of macroalgae on larval settlement and the growth and survival of coral recruits, in a field experiment over nine months. Exclusion treatments were used to manipulate herbivory and macroalgal biomass, while settlement tiles measured coral settlement and survival. After nine months the volume of macroalgae was up to 40 times greater in the caged treatments than in controls and the settlement of coral larvae on the undersides of tiles within caged plots was 93% lower than in the uncaged treatments. The growth and survival of coral recruits was also severely reduced in the presence of macroalgae: survival was 79% lower in caged treatments and corals were up to 58% smaller with 75% fewer polyps. These data indicate that macroalgae has an additive effect on coral recruitment by reducing larval settlement and increasing recruit mortality. This research demonstrates that macroalgae can not only inhibit coral recruitment, but also potentially maintain dominance through a positive feedback system.