It is found from Kenya to South Africa on the coast of eastern Africa through the Indian Ocean, including Madagascar, Comoros Islands, Seychelles, Mauritius and Réunion as well as the Gulf of Aden, the Maldives and Chagos Islands, Sri Lanka and southern India.

In the Pacific, it is found as far north as southern Japan, south to Australia and from the Andaman Sea in the west east to the Austral Islands.

[1] In Australia it is found on the Houtman Abrolhos and the offshore reefs off northwestern Western Australia, as well as the northern Great Barrier Reef in Queensland south to Montague Island in New South Wales and east to Lord Howe Island in the Tasman Sea.

[5] Paracaesio xanthura is associated with reefs and is found over rocky substrates where it occasionally forms large aggregations.

[1] Paracaesio xanthura was first formally described in 1869 as Caseio xanthurus by the Dutch ichthyologist, herpetologist and physician Pieter Bleeker with the type locality given as Nosy-Bé off Madagascar.