Marine heatwaves can lead to rapid changes in entire communities, including in the case of shallow coral reefs the potential overgrowth of algae. Here we tested experimentally the differential thermal tolerance between algae and coral species from the Red Sea through the measurement of thermal performance curves and the assessment of thermal limits. Differences across functional groups (algae vs. corals) were apparent for two key thermal performance metrics. First, two reef-associated algae species (Halimeda tuna and Turbinaria ornata) had higher lethal thermal limits than two coral species (Pocillopora verrucosa and Stylophora pistillata) conferring those species of algae with a clear advantage during heatwaves by surpassing the thermal threshold of coral survival. Second, the coral species had generally greater deactivation energies for net and gross primary production rates compared to the algae species, indicating greater thermal sensitivity in corals once the optimum temperature is exceeded. Our field surveys in the Red Sea reefs before and after the marine heatwave of 2015 show a change in benthic cover mainly in the southern reefs, where there was a decrease in coral cover and a concomitant increase in algae abundance, mainly turf algae. Our laboratory and field observations indicate that a proliferation of algae might be expected on Red Sea coral reefs with future ocean warming.