Tool use is rare in wild animals, but of widespread interest because of its relationship to animal cognition, social learning and culture. Despite such attention, quantifying the costs and benefits of tool use has been difficult, largely because if tool use occurs, all population members typically exhibit the behavior. In Shark Bay, Australia, only a subset of the bottlenose dolphin population uses marine sponges as tools, providing an opportunity to assess both proximate and ultimate costs and benefits and document patterns of transmission. We compared sponge-carrying (sponger) females to non-sponge-carrying (non-sponger) females and show that spongers were more solitary, spent more time in deep water channel habitats, dived for longer durations, and devoted more time to foraging than non-spongers; and, even with these potential proximate costs, calving success of sponger females was not significantly different from non-spongers. We also show a clear female-bias in the ontogeny of sponging. With a solitary lifestyle, specialization, and high foraging demands, spongers used tools more than any non-human animal. We suggest that the ecological, social, and developmental mechanisms involved likely (1) help explain the high intrapopulation variation in female behaviour, (2) indicate tradeoffs (e.g., time allocation) between ecological and social factors and, (3) constrain the spread of this innovation to primarily vertical transmission.