Despite their important ecological roles in marine ecosystems, reproduction and early life stages of the majority of marine sponges remain undescribed. Here we characterize the mode of reproduction and the early life stages of an abundant sponge in temperate Pacific waters, Crella incrustans. Through histology, we characterized the production of gametes and the sequential steps of larval ontogeny. Using in vivo observations, we described larval release, settlement, and metamorphosis. Specimens of C. incrustans presented spermatocytes, oocytes, and several developmental stages in the sponge mesohyl during the Australasian summer (from January to March 2020), demonstrating this sponge to be a simultaneous hermaphrodite with internal fertilization, asynchronous development, and brooded embryos. As in other viviparous demosponges, mature embryos were released during the Australasian summer as free-swimming non-tufted parenchymella larvae. Under laboratory conditions, 94.3% of larvae settled within 2 days and metamorphosed into functional settlers within a week. Gametogenesis, embryonic development, larval characteristics, settlement, and metamorphosis of C. incrustans are consistent with the reproductive features common to the majority of poecilosclerid sponges. Overall, our study provides important information on the early life stages of this temperate model species for future ecophysiological experiments.