The global decline of coral reefs highlights the need to understand the mechanisms that regulate community structure and sustain biodiversity in these systems. The neutral theory, which assumes that individuals are demographically identical regardless of species, seeks to explain ubiquitous features of community structure and biodiversity patterns. Here we present a test of neutral-theory predictions with the use of an extensive species-level data set of Indo-Pacific coral communities. We show that coral assemblages differ markedly from neutral-model predictions for patterns of community similarity and the relative abundance of species. Within local communities, neutral models do not fit relative abundance distributions as well as the classical log-normal distribution. Relative abundances of species across local communities also differ markedly from neutral-theory predictions: coral communities exhibit community similarity values that are far more variable, and lower on average, than the neutral theory can produce. Empirical community similarities deviate from the neutral model in a direction opposite to that predicted in previous critiques of the neutral theory. Instead, our results support spatio-temporal environmental stochasticity as a major driver of diversity patterns on coral reefs.