Palaemonella yalla sp. nov. is described based on two ovigerous females: the holotype from Thuwal, Red Sea coast of Saudi Arabia, and a non-type specimen from Masirah Island, eastern Oman. The new species is very close to P. okunoi Komai & Yamada, 2015, from which it is essentially distinguishable by the distoventrally armed merus of the second pereiopods. The Saudi Arabian specimen was extracted from a burrow of an unknown host, whereas the Omani specimen was found in a muddy depression created after flipping a large rock deeply embedded in the sediment.