Restoration of degraded coral reef communities is dependent on successful recruitment and survival of new coral planulae. Degraded reefs are often characterized by high cover of fleshy algae and high microbial densities, complemented by low abundance of coral and coral recruits. Here, we investigated how the presence and abundance of macroalgae and microbes affected recruitment success of a common Hawaiian coral. We found that the presence of algae reduced survivorship and settlement success of planulae. With the addition of the broad-spectrum antibiotic, ampicillin, these negative effects were reversed, suggesting that algae indirectly cause planular mortality by enhancing microbial concentrations or by weakening the coral's resistance to microbial infections. Algae further reduced recruitment success of corals as planulae preferentially settled on algal surfaces, but later suffered 100% mortality. In contrast to survival, settlement was unsuccessful in treatments containing antibiotics, suggesting that benthic microbes may be necessary to induce settlement. These experiments highlight potential complex interactions that govern the relationships between microbes, algae and corals and emphasize the importance of microbial dynamics in coral reef ecology and restoration.