Diversification rates within four conspicuous coral reef fish families (Labridae, Chaetodontidae, Pomacentridae and Apogonidae) were estimated using Bayesian inference. Lineage through time plots revealed a possible late Eocene/early Oligocene cryptic extinction event coinciding with the collapse of the ancestral Tethyan/Arabian hotspot. Rates of diversification analysis revealed elevated cladogenesis in all families in the Oligocene/Miocene. Throughout the Miocene, lineages with a high percentage of coral reef–associated taxa display significantly higher net diversification rates than expected. The development of a complex mosaic of reef habitats in the Indo‐Australian Archipelago (IAA) during the Oligocene/Miocene appears to have been a significant driver of cladogenesis. Patterns of diversification suggest that coral reefs acted as a refuge from high extinction, as reef taxa are able to sustain diversification at high extinction rates. The IAA appears to support both cladogenesis and survival in associated lineages, laying the foundation for the recent IAA marine biodiversity hotspot.