The end of the Pliocene marked the beginning of a period of great climatic variability and sea-level oscillations. Here, based on a new analysis of the fossil record, we identify a previously unrecognized extinction event among marine megafauna (mammals, seabirds, turtles and sharks) during this time, with extinction rates three times higher than in the rest of the Cenozoic, and with 36% of Pliocene genera failing to survive into the Pleistocene. To gauge the potential consequences of this event for ecosystem functioning, we evaluate its impacts on functional diversity, focusing on the 86% of the megafauna genera that are associated with coastal habitats. Seven (14%) coastal functional entities (unique trait combinations) disappeared, along with 17% of functional richness (volume of the functional space). The origination of new genera during the Pleistocene created new functional entities and contributed to a functional shift of 21%, but minimally compensated for the functional space lost. Reconstructions show that from the late Pliocene onwards, the global area of the neritic zone significantly diminished and exhibited amplified fluctuations. We hypothesize that the abrupt loss of productive coastal habitats, potentially acting alongside oceanographic alterations, was a key extinction driver. The importance of area loss is supported by model analyses showing that animals with high energy requirements (homeotherms) were more susceptible to extinction. The extinction event we uncover here demonstrates that marine megafauna were more vulnerable to global environmental changes in the recent geological past than previously thought.