Shifts from coral to algal dominance are expected to increase in tropical coral reefs as a result of anthropogenic disturbances. The consequences for key ecosystem functions such as primary productivity, calcification, and nutrient recycling are poorly understood, particularly under changing environmental conditions. We used a novel in situ incubation approach to compare functions of coral- and algae-dominated communities in the central Red Sea bimonthly over an entire year. In situ gross and net community primary productivity, calcification, dissolved organic carbon fluxes, dissolved inorganic nitrogen fluxes, and their respective activation energies were quantified to describe the effects of seasonal changes. Overall, coral-dominated communities exhibited 30% lower net productivity and 10 times higher calcification than algae-dominated communities. Estimated activation energies indicated a higher thermal sensitivity of coral-dominated communities. In these communities, net productivity and calcification were negatively correlated with temperature (>40% and >65% reduction, respectively, with +5°C increase from winter to summer), whereas carbon losses via respiration and dissolved organic carbon release more than doubled at higher temperatures. In contrast, algae-dominated communities doubled net productivity in summer, while calcification and dissolved organic carbon fluxes were unaffected. These results suggest pronounced changes in community functioning associated with coral-algal phase shifts. Algae-dominated communities may outcompete coral-dominated communities because of their higher productivity and carbon retention to support fast biomass accumulation while compromising the formation of important reef framework structures. Higher temperatures likely amplify these functional differences, indicating a high vulnerability of ecosystem functions of coral-dominated communities to temperatures even below coral bleaching thresholds. Our results suggest that ocean warming may not only cause but also amplify coral–algal phase shifts in coral reefs.