Background: Transmission mechanisms of black-band disease (BBD) in coral reefs are poorly understood, although this disease is considered to be one of the most widespread and destructive coral infectious diseases. The major objective of this study was to assess transmission mechanisms of BBD in the field based on the spatio-temporal patterns of the disease. Methodology/Principal Findings: 3,175 susceptible and infected corals were mapped over an area of 10×10 m in Eilat (northern Gulf of Aqaba, Red Sea) and the distribution of the disease was examined monthly throughout almost two full disease cycles (June 2006-December 2007). Spatial and spatio-temporal analyses were applied to infer the transmission pattern of the disease and to calculate key epidemiological parameters such as R0 (basic reproduction number). We show that the prevalence of the disease is strongly associated with high water temperature. When water temperatures rise and disease prevalence increases, infected corals exhibit aggregated distributions on small spatial scales of up to 1.9 m. Additionally, newly-infected corals clearly appear in proximity to existing infected corals and in a few cases in direct contact with them. We also present and test a model of water-borne infection, indicating that the likelihood of a susceptible coral becoming infected is defined by its spatial location and by the relative spatial distribution of nearby infected corals found in the site. Conclusions/Significance: Our results provide evidence that local transmission, but not necessarily by direct contact, is likely to be an important factor in the spread of the disease over the tested spatial scale. In the absence of potential disease vectors with limited mobility (e.g., snails, fireworms) in the studied site, water-borne infection is likely to be a significant transmission mechanism of BBD. Our suggested model of water-borne transmission supports this hypothesis. The spatio-temporal analysis also points out that infected corals surviving a disease season appear to play a major role in the reintroduction of the disease to the coral community in the following season.