Sponges underpin the productivity of coral reefs, yet few of their microbial symbionts have been functionally characterised. Here we present an analysis of ~1200 metagenome-assembled genomes (MAGs) spanning seven sponge species and 25 microbial phyla. Compared to MAGs derived from reef seawater, sponge-associated MAGs were enriched in glycosyl hydrolases targeting components of sponge tissue, coral mucus and macroalgae, revealing a critical role for sponge symbionts in cycling reef organic matter. Further, visualisation of the distribution of these genes amongst symbiont taxa uncovered functional guilds for reef organic matter degradation. Genes for the utilisation of sialic acids and glycosaminoglycans present in sponge tissue were found in specific microbial lineages that also encoded genes for attachment to sponge-derived fibronectins and cadherins, suggesting these lineages can utilise specific structural elements of sponge tissue. Further, genes encoding CRISPR and restriction-modification systems used in defence against mobile genetic elements were enriched in sponge symbionts, along with eukaryote-like gene motifs thought to be involved in maintaining host association. Finally, we provide evidence that many of these sponge-enriched genes are laterally transferred between microbial taxa, suggesting they confer a selective advantage within the sponge niche and therefore play a critical role in host ecology and evolution.