Coral bleaching and related reef degradation have caused significant declines in the abundance of reef-associated fishes. Most attention on the effects of bleaching has focused on corals, but bleaching is also prevalent in other cnidarians, including sea anemones. The consequences of anemone bleaching are unknown, and the demographic effects of bleaching on associated fish recruitment, survival, and reproduction are poorly understood. We examined the effect of habitat degradation including host anemone bleaching on fish abundance, egg production, and recruitment of the panda anemonefish (Amphiprion polymnus) near Port Moresby, Papua New Guinea. Following a high-temperature anomaly in shallow waters of the region, most shallow anemones to a depth of 6 m (approximately 35% of all the anemones in this area) were severely bleached. Anemone mortality was low but bleached anemones underwent a similar to 34% reduction in body size. Total numbers of A. polymnus were not affected by bleaching and reduction in shelter area. While egg production of females living in bleached anemones was reduced by similar to 38% in 2009 compared to 2008, egg production of females on unbleached anemones did not differ significantly between years. Total recruitment in 2009 was much lower than in 2008. However, we found no evidence of recruiting larvae avoiding bleached anemones at settlement suggesting that other factors or different chemical cues were more important in determining recruitment than habitat quality. These results provide the first field evidence of detrimental effects of climate-induced bleaching and habitat degradation on reproduction and recruitment of anemonefish.