Sponges are one of the dominant fauna on Florida and Caribbean coral reefs, with species diversity often exceeding that of scleractinian corals. Despite the key role of sponges as structural components, habitat providers, and nutrient recyclers in reef ecosystems, their dispersal dynamics are little understood. We used ten microsatellite markers to study the population structure and dispersal patterns of a prominent reef species, the giant barrel sponge (Xestospongia muta), the long-lived “redwood” of the reef, throughout Florida and the Caribbean. F-statistics, exact tests of population differentiation, and Bayesian multi-locus genotype analyses revealed high levels of overall genetic partitioning (FST = 0.12, P = 0.001) and grouped 363 individuals collected from the Bahamas, Honduras, US Virgin Islands, Key Largo (Florida), and the remainder of the Florida reef tract into at minimum five genetic clusters (K = 5). Exact tests, however, revealed further differentiation, grouping sponges sampled from five locations across the Florida reef tract (~250 km) into three populations, suggesting a total of six genetic populations across the eight locations sampled. Assignment tests showed dispersal over ecological timescales to be limited to relatively short distances, as the only migration detected among populations was within the Florida reef tract. Consequently, populations of this major coral reef benthic constituent appear largely self-recruiting. A combination of levels of genetic differentiation, genetic distance, and assignment tests support the important role of the Caribbean and Florida currents in shaping patterns of contemporary and historical gene flow in this widespread coral reef species.