Hypoxia tolerance and air-breathing occur in a range of freshwater, estuarine and intertidal fishes. Here it is shown for the first time that coral reef fishes from the genera Gobiodon, Paragobiodon and Caracanthus, which all have an obligate association with living coral, also exhibit hypoxia tolerance and a well-developed air-breathing capacity. All nine species maintained adequate respiration in water at oxygen concentrations down to 15-25% air saturation. This hypoxia tolerance is probably needed when the oxygen levels in the coral habitat drops sharply at night. Air-breathing abilities of the species correlated with habitat association, being greatest (equaling oxygen uptake in water) in species that occupy corals extending into shallow water, where they may become air exposed during extreme low tides. Air-breathing was less well-developed or absent in species inhabiting corals from deeper waters. Loss of scales and a network of subcutaneous capillaries appear to be key adaptations allowing cutaneous respiration in air. While hypoxia tolerance may be an ancestral trait in these fishes, air-breathing is likely to be a more recent adaptation exemplifying convergent evolution in the unrelated genera Gobiodon and Caracanthus in response to coral-dwelling lifestyles.