Red-capped Robins breed in pairs within a breeding territory established and defended by the male. The male sings from perches around the boundary of the territory to deter other Red-capped Robins and also other robin species, such as the Scarlet Robin, P. multicolor. The female chooses a nest site in a tree-fork and builds an open, cup-shaped nest of bark, grass, and rootlets, bound together with spider web, lined with soft materials and often camoflaged with lichen, bark and mosses. The male feeds the female during nest-building and incubation. The female incubates the eggs alone and both sexes feed the young. Once the young have fledged, they may remain in their parents' territories for up to one and a half months before dispersing. Nests may be parasitised by cuckoos. Predators of nestlings include the Grey Shrike-thrush, Colluricincla harmonica, and the Grey Butcherbird, Craticus torquatus.
Research by the Australian Museum (Major et al., 1999) has shown that male Red-capped Robin density is much lower in small, linear bushland remnants than in large non-linear remnants. The small remnants represented a higher risk of predation, making them much less suitable as breeding habitat.