Calcified cyanobacterial microfossils are common in carbonate environments through most of the Phanerozoic, but are absent from the marine rock record over the past 65 Myr. There has been long-standing debate on the factors controlling the formation and temporal distribution of these fossils, fostered by the lack of a suitable modern analog. We describe calcified cyanobacteria filaments in a modern marine reef setting at Highborne Cay, Bahamas. Our observations and stable isotope data suggest that initial calcification occurs in living cyanobacteria and is photosynthetically induced. A single variety of cyanobacteria, Dichothrix sp., produces calcified filaments. Adjacent cyanobacterial mats form well-laminated stromatolites, rather than calcified filaments, indicating there can be a strong taxonomic control over the mechanism of microbial calcification. Petrographic analyses indicate that the calcified filaments are degraded during early diagenesis and are not present in well-lithified microbialites. The early diagenetic destruction of calcified filaments at Highborne Cay indicates that the absence of calcified cyanobacteria from periods of the Phanerozoic is likely to be caused by low preservation potential as well as inhibited formation.