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Abstract Background Acoustic telemetry has been used with great success to quantify the movements of marine fishes in open habitats, however research has begun to focus on patterns of movement and habitat usage within more structurally complex habitats. To date, there has been no detailed assessment of the performance of acoustic telemetry within seagrass, which forms a crucial nursery and foraging habitat for many fish species globally. Information on the detection range of acoustic receivers within seagrass is essential to guide receiver array design, particularly positioning systems. Here, we compare detection ranges for transmitters (Vemco V7) within and above the seagrass to determine impacts on the performance of a Vemco Positioning System (VPS). We also investigate the influence of environmental conditions (i.e. wind, time of day, background noise, atmospheric pressure and depth) on detection probability. Results The performance of the VPS declined dramatically when the transmitters were positioned within the seagrass (positional accuracy = 2.69 m, precision = 0.9 m, system efficiency (i.e. the proportion of successful positions) = 5.9%) compared to above the canopy (positional accuracy = 2.21 m, precision = 0.45 m, system efficiency = 30.9%). The reduction in VPS efficiency when transmitters were within seagrass was caused by a decline in the detection range of receivers (range of 50% detections) from 85 to 40 m, as this limited the ability of the three receivers to simultaneously detect transmissions. Additionally, no detections were recorded for the transmitters within seagrass at a distance greater than 150 m from the receiver. Increasing wind speed from 0 to 50 km h−1 correlated with a 15% reduction in detections while detection probability decreased from 0.8 during the day to 0.55 at night, due to higher in-band noise (69 kHz). Conclusions Our findings demonstrate that tagged fish ensconced within seagrass are unlikely to be detected by receivers or positioned by a VPS. Further, we demonstrate that wind conditions and the time of day create temporal variation in detection probability. These findings highlight the need for telemetry studies to perform in situ range testing and consider how fish use vegetated habitats such as seagrasses when positioning receivers and interpreting data.