A central issue in evolutionary ecology is how patterns of dispersal influence patterns of relatedness in populations. In terrestrial organisms, limited dispersal of offspring leads to groups of related individuals. In contrast, for most marine organisms, larval dispersal in open waters is thought to minimise kin associations within populations. However, recent molecular evidence and theoretical approaches have shown that limited dispersal, sibling cohesion, and/or differential reproductive success can lead to kin-association and elevated relatedness. Here, we tested the hypothesis that limited dispersal explains small-scale patterns of relatedness in the pajama cardinalfish Sphaeramia nematoptera. We used 19 microsatellite markers to assess parentage of 233 juveniles and pairwise relatedness among 527 individuals from 41 groups in Kimbe Bay, Papua New Guinea. Our findings support three predictions of the limited dispersal hypothesis: 1) Elevated relatedness within groups, compared to among groups, and elevated relatedness within reefs compared to among reefs; 2) A weak negative correlation of relatedness with distance; 3) More juveniles than would be expected by chance in the same group and the same reef as their parents. We provide the first example for natal philopatry at the group level causing small-scale patterns of genetic relatedness in a marine fish.