Lysmata hochi n. sp., a new peppermint shrimp, is described from Bocas del Toro, Caribbean coast of Panama. All individuals were collected on near-shore fossil coral terraces with deep channels and caves, sparsely covered with seagrass. Besides the type locality, L. hochi n. sp. also occurs in Cahuita, Costa Rica, in a similar type of habitat. The new species can be distinguished from other species of Lysmata by the presence of an unguis-shaped accessory branch on the lateral antennular flagellum; the rostrum with three dorsal teeth, followed by two mid-dorsal teeth on the carapace posterior to the orbital margin; the number of carpal segments of the second pereiopod ranging from 21 to 24; the presence of two to four ventrolateral spines on the merus of the third pereiopod; the dactylus of the third to fifth pereiopod bearing two spines in addition to a bifurcated inguis; and the conspicuous color pattern, especially the irregular bright red bands on the pleon. Based on morphology and (where known) color patterns, L. hochi n. sp. appears to be most closely related to the Indo-West Pacific L. kuekenthali (De Man) and the eastern Atlantic L. uncicornis Holthuis and Maurin. Anatomical observations, field population studies and laboratory experiments indicate that L. hochi n. sp. is a protandric simultaneous hermaphrodite, with a primary male phase followed by a simultaneous hermaphrodite phase.