Migratory galaxiids and bully species are characterised by dramatic ontogenetic niche separation between a pelagic larval and benthic adult phase. Adult growth and reproduction occurs in freshwater, whereas larvae are expected to develop at sea. Traditionally, a marine pelagic larval period was thought beneficial because it resulted in offspring dispersal. An alternative view argues a pelagic larval period evolved because small larvae need a pelagic environment for rearing, not because dispersing larvae were adaptive. If so, streams upstream of lakes will be dominated by recruits derived from that lake, irrespective of any connections to the sea. We determined the proportion of fish exhibiting diadromous or non-diadromous recruitment in 6 paired catchments with and without coastal lakes. High retention rates were common within lakes. Most strikingly, 20 out of 20 Galaxias brevipinnis collected upstream of Lake Moeraki, the outlet of which is only 3km from the coast, were self-recruiting. Given the predominance of self-recruitment upstream of coastal lake systems, we suggest retention in estuaries and harbours may also be common. Management of whitebait metapopulations, and other species with pelagic larvae, needs to incorporate an understanding of larval ecology and appreciate the potential for localised recruitment dynamics in systems that promote retention.