The bio-indicator function of butterflyfish (Chaetodontidae) was investigated by studying habitat and disturbance effects on chaetodontid species in Sri Lanka. This was done by counting fish within 147, 50-meter belt-transects in 3 different reef types including coral, sandstone and rock reefs; all of which contained a variety of habitats. Habitat distribution patterns for 36 species were observed. The relationships between habitat structure and butterflyfish assemblages were established in Spearman-rank correla­ tions and in multidi-mensional scaling ordinations, and the similarities in the two multivariate patterns of habitat and fisn community composition were statistically confirmed using the RELATE-procedure. Most species were restricted to a few habitats, however, the 3 most numerous species, Chaetodon decussatus, C. trifascialis and C. trifasciatus had ubiquitous distributions, although the two latter species dominated the coral-rich areas. Food availability seemed to be an important factor influencing assemblage-specific distribution patterns. Coral-reef habitats had, in comparison with sandstone and rock reefs, the most diversified and abundant butterflyfish community overall. These habitats were dominated by corallivores, the overall most abundant trophic group, which showed strong positive correlations with live coral cover. Omnivores though, had more general preferences than corallivores occurring in various habitat types. Habitat dependence was further confirmed by comparing coral reefs in sanctuaries with disturbed areas that had received extensive habitat destruction. The latter reefs had a more depauperate fauna with lower densities and diversity. Results from this study suggested that butterflyfish can act as indicators of habitat structure and disturbances in coral reefs in Sri Lanka. However, the butterflyfish bio-indicator hypothesis has received ample criticism in a number of studies, and with the complexity characterizing tropical-reef ecosystems and the multi­ tude of processes structuring reef-fish communities, the global applicability of chaetodontids as bio-indicators is questionable.