The Cenozoic genus Terebratula seems to be an exception to the post-Permian trend in brachiopod retreat to offshore habitats, because it was species rich and numerically abundant in warm-temperate shallow-water environments in the Mediterranean and the Paratethys realms. This was so despite the general dominance of bivalves and the pervasive bioturbation and predation pressure during the Neogene. Terebratula, however, went extinct in the Calabrian (Pleistocene). The optimal environmental conditions for Terebratula during its prime are poorly known. The Águilas Basin (SE Spain) is an ideal study area to investigate the habitat of Terebratula, because shell beds of this brachiopod occur there cyclically in early Pliocene deposits. We evaluate the paleoecological boundary conditions controlling the distribution of Terebratula by estimating its environmental tolerances using benthic and planktic foraminiferal and nannoplanktic assemblages and oxygen isotopes of the secondary layer brachiopod calcite. Our results suggest that Terebratula in the Águilas Basin favored oligotrophic to mesotrophic, well-oxygenated environments at water depths of 60–90 m. Planktic foraminiferal assemblages and oxygen isotopes point to sea-surface temperatures between ~16°C and 22°C, and bottom-water temperatures between 17°C and 24°C. The analyzed proxies indicate that Terebratula tolerated local variations in water depth, bottom temperature, oxygenation, productivity, and organic enrichment. Terebratula was probably excluded by grazing pressure from well-lit environments and preferentially occupied sediment-starved, current-swept upper offshore habitats where coralline red algae were absent. Narrow temperature ranges of Terebratula species might have been a disadvantage during the high-amplitude seawater temperature fluctuations that started about 1 Ma, when the genus went extinct.