Because of strict environmental restrictions, coral reefs generally are confined to tropical and semi-tropical waters

This reefscape exhibits a typical mix of coral, sponges, algae, and fish found in this part of the Dry Tortugas, off the coast of Florida.

Reef-building corals cannot tolerate water temperatures below 64° Fahrenheit (18° Celsius). Many grow optimally in water temperatures between 73° and 84° Fahrenheit (23°–29°Celsius), but some can tolerate temperatures as high as 104° Fahrenheit (40° Celsius) for short periods.

Most reef-building corals also require very saline (salty) water ranging from 32 to 42 parts per thousand.

The water must also be clear so that a maximum amount of light penetrates it. This is because most reef-building corals contain photosynthetic algae, called zooxanthellae, which live in their tissues. The corals and algae have a unique relationship. The coral provides the algae with a protected environment and compounds they need for photosynthesis. In return, the algae produce oxygen and help the coral to remove wastes. Most importantly, zooxanthellae supply the coral with food. The algae need light in order to produce food via photosynthesis.

For more information:
Corals Tutorial, NOS Education
Coral Reef Biology, NOAA's Coral Reef Information System