Ancestral vertebrate habitats are subject to controversy, and obscured by limited, often contradictory, paleontological data. We assembled fossil vertebrate occurrence and habitat datasets spanning the mid-Paleozoic (480-360 Mya) and found that early vertebrate clades, both jawed and jawless, originated in restricted, shallow intertidal-subtidal environments. Nearshore divergences gave rise to body plans with different dispersal abilities: robust fishes shifted more shoreward while gracile groups moved seaward. Freshwaters were invaded repeatedly, but movement to deeper waters was contingent upon form, and short-lived until the later Devonian. Our results contrast with the onshore-offshore trends, reef-centered diversification, and mid-shelf clustering observed in benthic invertebrates. Nearshore origins for vertebrates may be linked to the demands of their mobility, and influenced the structure of their early fossil record and diversification. One sentence summary: Early vertebrates diversified in restricted, shallow marine waters, with nearshore divergence in body form shaping their dispersal and fossil record.