Assessing biodiversity in marine nearshore ecosystems is crucial for effective management, especially in the context of climate change and overexploitation of marine resources. Conventional methods often fall short in providing comprehensive information for managing seagrass ecosystems. However, the emergence of environmental DNA (eDNA) techniques has transformed the field by enabling noninvasive surveys that are cost effective and provide detailed information with high resolution. In this study, we utilized eDNA to assess fish diversity and compared its effectiveness to conventional techniques such as catch assessment surveys and underwater surveys. We sampled three habitats (A: mangrove‐seagrass, B: seagrass only, and C: coral‐seagrass) with 4 replicates. Site A recorded 8 fish species, site B had 16 species, and site C, characterized by coral and seagrass habitats, exhibited the highest fish diversity with 45 species (mean H′ index = 2.455), underscoring its ecological importance. To ensure accurate taxonomic identification, we utilized an updated MiFish reference database containing a larger number of fish species compared to the initial library. This expanded reference database with 9569 fish species, facilitated more precise identification and enhanced the reliability of our findings. Notably, the eDNA technique outperformed conventional methods by detecting 23 additional fish species that went undetected using traditional surveys. Moreover, our study documented five fish species previously unknown to occur within the study region, further emphasizing the value of eDNA analysis in uncovering hidden biodiversity. These findings strongly advocate for integrating eDNA techniques into the monitoring and assessment of biodiversity in shallow tropical habitats of the Western Indian Ocean. By leveraging eDNA surveys, we can gain valuable insights into fish diversity, discover hidden species, and make informed decisions for the conservation and management of these ecologically significant areas.