Studies of trait-mediated indirect interactions (TMIIs) typically focus on effects higher predators have on per capita consumption by intermediate consumers of a third, basal prey resource. TMIIs are usually evidenced by changes in feeding rates of intermediate consumers and/or differences in densities of this third species. However, understanding and predicting effects of TMIIs on population stability of such basal species requires examination of the type and magnitude of the functional responses exhibited towards them. Here, in a marine intertidal system consisting of a higher-order fish predator, the shanny Lipophrys pholis, an intermediate predator, the amphipod Echinogammarus marinus, and a basal prey resource, the isopod Jaera nordmanni, we detected TMIIs, demonstrating the importance of habitat complexity in such interactions, by deriving functional responses and exploring consequences for prey population stability. Echinogammarus marinus reacted to fish predator diet cues by reducing activity, a typical anti-predator response, but did not alter habitat use. Basal prey, Jaera nordmanni, did not respond to fish diet cues with respect to activity, distribution or aggregation behaviour. Echinogammarus marinus exhibited type II functional responses towards J. nordmanni in simple habitat, but type III functional responses in complex habitat. However, while predator cue decreased the magnitude of the type II functional response in simple habitat, it increased the magnitude of the type III functional response in complex habitat. These findings indicate that, in simple habitats, TMIIs may drive down consumption rates within type II responses, however, this interaction may remain de-stabilising for prey populations. Conversely, in complex habitats, TMIIs may strengthen regulatory influences of intermediate consumers on prey populations, whilst potentially maintaining prey population stability. We thus highlight that TMIIs can have unexpected and complex ramifications throughout communities, but can be unravelled by considering effects on intermediate predator functional response types and magnitudes. Synthesis Higher-order predators and habitat complexity can influence behaviour of intermediate species, affecting their consumption of prey through trait-mediated indirect interactions (TMIIs). However, it is not clear how these factors interact to determine prey population stability. Using functional responses (FRs), relating predator consumption to prey density, we detected TMIIs in a marine system. In simple habitats, TMIIs reduced consumption rates, but FRs remained de-stabilising for prey populations. In complex habitats, TMIIs strengthened prey regulation with population stabilizing FRs. We thus demonstrate that FRs can assess interactions of environmental and biological cues that result in complex and unexpected outcomes for prey populations.