Sponges are now the dominant habitat-forming animals on Caribbean reefs, where the combined effects of climate change, pollution, and disease have decimated reef-building corals. Natural products chemists have been isolating novel secondary metabolites from Caribbean sponges for many decades, but relevant studies of the ecological functions of these compounds have been more recent. Bioassay-guided surveys have revealed sponge chemical defenses against predators, competitors, and pathogens, but many common sponge species lack chemical defenses and appear to have followed a different evolutionary trajectory, investing instead in greater reproduction or growth. The emerging conceptual model predicts that changes in the abundances of fish- and sponge-eating fishes on Caribbean reefs will have a cascading impact on the sponge community, with indirect effects on the broader community of corals and seaweeds. Caribbean sponges provide an important alternative to terrestrial plant and insect communities for testing basic ecological theories about chemical defenses and resource allocation.