Coral interacts both positively and negatively with different types of crustose coralline algae (CCA) throughout the coral life cycle. These interactions range from settlement cues and facilitation by “promoter” CCA species to settlement inhibition, preemptive competition for space, and overgrowth of smaller coral colonies by “inhibitor” CCA species. Corals coexist with CCA in healthy coral reefs despite appearing to be weaker space competitors than inhibitor CCA. We use spatially explicit stochastic simulations of size dependent interactions between individual coral colonies and CCA patches to explore how CCA affects the recovery of corals after disturbance in homogenous and heterogeneous habitat. Specifically, we look at whether positive or negative interactions have a larger effect on coral growth and survival and whether events during recruitment or interactions between CCA and established colonies have larger impacts on coral cover and persistence. We find that competition for space through preemption and overgrowth is the primary factor driving coral dynamics, overshadowing settlement processes. Coexistence of coral and CCA is difficult if not impossible to achieve in homogenous landscapes unless corals are more effective than CCA at preempting space. Microhabitats that protect coral settlers from overgrowth allow vulnerable coral to persist and replace refuge coral that has died, but additional mechanisms such as competitive reversals or patchy CCA mortality are required for coral persistence outside of protected microhabitats. Through these models we identify mechanisms that have been rarely studied but are potentially critical for the survival of coral in areas where CCA is a dominant competitor.