Animals can change their body color for various ecological functions. In fish, rapid dynamic color change is primarily known in contexts of intraspecific communication and camouflage, while examples in interspecific contexts are rare. We studied dynamic color changes and their associated behaviors in the grouper Variola louti in its native coral reef environment in the Red Sea. Using underwater videos to record natural behaviors and color-calibrated still images to measure body colors, we quantified color displays as the brightness of the body and the contrast of three distinct patterns: body patches, head stripe, and side bars. V. louti exhibited a diverse range of pattern displays, which rapidly transformed according to its behavioral shifts. A high-contrast head stripe pattern was observed when V. louti engaged in agonistic interspecific interactions, but was interestingly absent when hunting alone or in cooperation with moray eels. The brightness of V. louti’s body color and the contrasts of the body patches and side bars were associated with its swimming behavior. Darker body colors and high contrast body patches and side bars were expressed when the fish rested on the bottom, whereas bright and uniform body colors were displayed when swimming higher above the reef. Our results suggest that V. louti utilizes dynamic color displays for camouflage and interspecific communication in agonistic and competitive interspecific interactions. These findings highlight the importance of dynamic color changes for communication and provide valuable insights into the behavioral ecology of animals.