Marine sponges play important roles in benthic ecosystems. More than providing shelter and food to other species, they help maintain water quality by regulating nitrogen and ammonium levels in the water, and bioaccumulate heavy metals. This system, however, is particularly sensitive to sudden environmental changes including catastrophic pollution event such as oil spills. Hundreds of oil platforms are currently actively extracting oil and gas in the Gulf of Mexico. To test the vulnerability of the benthic ecosystems to oil spills, we utilized the Caribbean reef sponge, Cinachyrella alloclada, as a novel experimental indicator. We have exposed organisms to crude oil and oil dispersant for up to 24 h and measured resultant gene expression changes. Our findings indicate that 1-hour exposure to water accommodated fractions (WAF) was enough to elicit massive shifts in gene expression in sponges and host bacterial communities (8052 differentially expressed transcripts) with the up-regulation of stress related pathways, cancer related pathways, and cell integrity pathways. Genes that were upregulated included heat shock proteins, apoptosis, oncogenes (Rab/Ras, Src, CMYC), and several E3 ubiquitin ligases. 24-hour exposure of chemically enhanced WAF (CE-WAF) had the greatest impact to benthic communities, resulting in mostly downregulation of gene expression (4248 differentially expressed transcripts). Gene deregulation from 1-hour treatments follow this decreasing trend of toxicity: WAF > CE-WAF > Dispersant, while the 24-hour treatment showed a shift to CE-WAF > Dispersant > WAF in our experiments. Thus, this study supports the development of Cinachyrella alloclada as a research model organism and bioindicator species for Florida reefs and underscores the importance of developing more efficient and safer ways to remove oil in the event of a spill catastrophe.