Pterapogon kauderni, the Banggai Cardinalfish, demonstrates a marked ontogenetic shift in habitat and microhabitat use with new recruits differing significantly from older juveniles and adults. New recruits are commonly found in sea grass beds and associated with anemones, whereas older individuals and adults prefer coral reef habitat, and live coral or sea urchins as living substrates. This habitat segregation occurs within a small area, at the same depth, and it is related neither to a shift in feeding habits, nor to intraspecific competition. All size classes, including brooding males and mating pairs, overlap in habitat and microhabitat use. The processes behind this resource segregation are unclear, but the fact that P. kauderni lacks a larval period, and the embryos settle directly within the parental habitat, rules out any presettlement factor. Observations on various aspects of P. kauderni behavior indicate a likely combination of various processes acting together in determining its distribution patterns.