Although the impacts of nutrient pollution on coral reefs are well known, surprisingly, no statistical relationships have ever been established between water quality parameters, coral biodiversity and coral cover. Hong Kong provides a unique opportunity to assess this relationship. Here, coastal waters have been monitored monthly since 1986, at 76 stations, providing a highly spatially resolved water quality dataset including 68 903 data points. Moreover, a robust coral species richness (S) dataset is available from more than 100 surveyed locations, composed of 3453 individual colonies' observations, as well as a coral cover (CC) dataset including 85 sites. This wealth of data provides a unique opportunity to test the hypothesis that water quality, and in particular nutrients, drives coral biodiversity. The influence of water quality on S and CC was analyzed using GIS and multiple regression modeling. Eutrophication (as chlorophyll‐a concentration; CHLA) was negatively correlated with S and CC, whereas physicochemical parameters (DO and salinity) had no significant effect. The modeling further illustrated that particulate suspended matter, dissolved inorganic nitrogen (DIN) and dissolved inorganic phosphorus (DIP) had a negative effect on S and on CC; however, the effect of nutrients was 1.5‐fold to twofold greater. The highest S and CC occurred where CHLA <2 μg L−1, DIN < 2 μm and DIP < 0.1 μm. Where these values were exceeded, S and CC were significantly lower and no live corals were observed where CHLA > 15 μg L−1, DIN > 9 μm and DIP > 0.33 μm. This study demonstrates the importance of nutrients over other water quality parameters in coral biodiversity loss and highlights the key role of eutrophication in shaping coastal coral reef ecosystems. This work also provides ecological thresholds that may be useful for water quality guidelines and nutrient mitigation policies.