Individuals of the recently described demosponge Thoosa mismalolli are common on Mexican Pacific coral reefs, excavating burrows in living corals and in other calcareous substrata. To better understand the propagative abilities of this sponge, we conducted a histological study over an 18-month period (May 2007-November 2008) to identify sexual and asexual reproductive structures. Members of the species are viviparous and hermaphroditic, with various developmental stages of oocytes, spermatic cysts, and embryos co-occurring in the mesohyl for most of the year. This nearly continuous reproductive activity intensified during the warm season. Fertilization was internal, and embryos developed inside the parental sponge to produce an unciliated hoplitomella larva, characterized by a peculiar siliceous skeleton. In addition to the sexually generated larvae, adults of T. mismalolli formed gemmules for asexual reproduction. Gemmules occurred within the mesohyl during all months of the year, but were most abundant in the coldest months. This combination of sexual and asexual processes enables individuals of T. mismalolli to reproduce almost continuously. This strategy may facilitate both long-term persistence within reefs and effective dispersal between distant reefs.