Although the impact of environmental changes on the demographic parameters of top predators is well established, the mechanisms by which populations are affected remain poorly understood. Here, we show that a reduction in the thermal stratification of coastal water masses between 2005 and 2006 was associated with reduced foraging and breeding success of little penguins Eudyptula minor, major bio-indicators of the Bass Strait ecosystem in southern Australia. The foraging patterns of the penguins suggest that their prey disperse widely in poorly stratified waters, leading to reduced foraging efficiency and poor breeding success. Mixed water regimes resulting from storms are currently unusual during the breeding period of these birds, but are expected to become more frequent due to climate change.