Predator‐induced mortality rates are highest in early life stages; therefore, early recognition of threats can greatly increase survival chances. Some species of coral reef fishes have been frequently found to recruit back to their natal reefs; in this instance, there is a high chance of juveniles encountering their siblings, among other kin, after hatching. Kin recognition plays an important ecological role in that it allows individuals to protect genetically similar relatives, and hence increase their inclusive fitness. By observing changes in heart rates, we demonstrated that embryos of two damselfish species, Acanthochromis polyacanthus and Amphiprion melanopus , not only possess recognition of kin and damage‐released alarm odours, but also react to them in a graded manner. Such refined olfactory capabilities in embryonic stage organisms (seven and eleven days after fertilisation) suggest identification of threats may provide survival advantages post‐hatching, such as the informed choice of low risk habitats at settlement. To our knowledge this is the first time that kin recognition has been identified in embryos of any species.