In fishes, olfactory cues evoke behavioral responses that are crucial to survival; however, the receptors, olfactory sensory neurons, are directly exposed to the environment and are susceptible to damage from aquatic contaminants. In 2010, 4.9 million barrels of crude oil was released into the northern Gulf of Mexico from the Deepwater Horizon disaster, exposing marine organisms to this environmental contaminant. We examined the ability of bicolor damselfish (Stegastes partitus) exposed to the water accommodated fraction (WAF) of crude oil to respond to chemical alarm cue (CAC) using a two-channel flume. Control bicolor damselfish avoided CAC in the flume choice test, whereas WAF-exposed conspecifics did not. This lack of avoidance persisted following eight days of control water conditions. We then examined the physiological response to CAC, brine shrimp rinse, bile salt, and amino acid cues using the electro-olfactogram (EOG) technique and found that WAF-exposed bicolor damselfish were less likely to detect CAC as an olfactory cue but showed no difference in EOG amplitude or duration compared to controls. These data indicate that a sub-lethal WAF exposure directly modifies detection and avoidance of CAC beyond the exposure period and may suggest reduced predator avoidance behavior in oil-exposed fish in the wild.