This study examines how larval dispersal and habitat-specific variation in life-history characteristics shape the vertical distribution of a colonial ascidian, Diplosoma similis. Measurements were made of the pattern of larval dispersal, the distribution of larval settlers and adults, and the growth, fecundity, and survival rate of adults within four habitat zones on a coral reef. Results suggest that larvae tend to disperse unidirectionally up the reef slope and that the peak in the distribution of adults at the reef crest is at least partly a product of this unidirectional pattern of larval dispersal and differential growth. Because of disturbances such as rainstorms, the peak in the distribution of adults periodically shifts to depths lower than 4 m and then between disturbances probably returns to the reef crest as a result of larval dispersal. It is argued that, at spatial scales greater than the average distance larvae disperse, the population dynamics of this ascidian and perhaps other sessile marine invertebrates with restricted larval dispersal are probably best simulated by modified "patch" models that assume that the local environment is spatially heterogeneous, and migration occurs indirectly from nearby habitats through a spatially partitioned bath.