Tropical ectotherms are hypothesized to be vulnerable to environmental changes, but cascading effects of organismal tolerances on the assembly and functioning of reef fish communities are largely unknown. Here, we examine differences in organismal traits, assemblage structure, and productivity of cryptobenthic reef fishes between the world’s hottest, most extreme coral reefs in the southern Arabian Gulf and the nearby, but more environmentally benign, Gulf of Oman. We show that assemblages in the Arabian Gulf are half as diverse and less than 25% as abundant as in the Gulf of Oman, despite comparable benthic composition and live coral cover. This pattern appears to be driven by energetic deficiencies caused by responses to environmental extremes and distinct prey resource availability rather than absolute thermal tolerances. As a consequence, production, transfer, and replenishment of biomass through cryptobenthic fish assemblages is greatly reduced on Earth’s hottest coral reefs. Extreme environmental conditions, as predicted for the end of the 21st century, could thus disrupt the community structure and productivity of a critical functional group, independent of live coral loss.