We present the first in situ observations of the pelagic larvae of coral-reef fishes feeding, schooling and being preyed upon. In addition, we report on their behavioural interactions with adult and juvenile fishes. Observations on over 500 larvae of over 50 species (mostly from four families) near the end of their pelagic interval were made in both open water (> 1 km offshore) and near-reef environments. Nearly 10% of larvae were seen to feed in open water, but < 1% fed near the reef. Presettlement schooling was observed in five species of four families. We observed no predation upon larvae in open water except near the bottom. Near the reef, 8.5% of larvae were eaten. The main predators near and on the reef were a species of wrasse and lizardfishes. Rates of predation seem to differ among genera of pomacentrids, perhaps related to differences in behaviour when settling. When confronted with adult fishes, which happened largely near the reef, larvae reacted with a limited range of behaviours, including sheltering near the observer, swimming to the surface, slowing or stopping, or swimming offshore. The frequency of these behaviours differed among larvae of three pomacentrid genera. Interactions with reef residents, particularly pomacentrids, were common, and usually involved aggression by the resident toward settling larvae. This may act to discourage settlement during the day when such residents are active. These data show that behaviour of late larvae of coral-reef fishes is complex and can greatly influence survival and recruitment. Further, behaviour differs among taxa, showing that not only are larvae not passive, but also that a ‘generalised behaviour’ of larvae does not exist.