Effective marine management requires comprehensive data on the status of marine biodiversity. However, efficient methods that can document biodiversity in our oceans are currently lacking. Environmental DNA (eDNA) sourced from seawater offers a new avenue for investigating the biota in marine ecosystems. Here, we investigated the potential of eDNA to inform on the breadth of biodiversity present in a tropical marine environment. Directly sequencing eDNA from seawater using a shotgun approach resulted in only 0.34% of 22.3 million reads assigning to eukaryotes, highlighting the inefficiency of this method for assessing eukaryotic diversity. In contrast, using ‘tree of life’ (ToL) metabarcoding and 20-fold fewer sequencing reads, we could detect 287 families across the major divisions of eukaryotes. Our data also show that the best performing ‘universal’ PCR assay recovered only 44% of the eukaryotes identified across all assays, highlighting the need for multiple metabarcoding assays to catalogue biodiversity. Lastly, focusing on the fish genus Lethrinus, we recovered intra- and inter-specific haplotypes from seawater samples, illustrating that eDNA can be used to explore diversity beyond taxon identifications. Given the sensitivity and low cost of eDNA metabarcoding we advocate this approach be rapidly integrated into biomonitoring programs.