New Zealand: "Southland, Te Anau, Te Anau Bush; 8.iv.1969, leg. Horak (PDD, 27126: holotype; ZT, 69/244: isotype)".

Pileus 5-15 mm diam., hemispherical becoming convex, margin incurved; dark brown, umber brown, equally coloured; dry, densely covered with concolorous, squarrose, coarse scales and squamules all over, estriate margin appendiculate, veil remnants absent. Lamellae emarginate-adnate, or adnexed, ventricose, crowded (L-20, 1-5); whitish when young turning pale brown to pale rust brown, edge albofimbriate. Stipe 15-25 x 1-1.5 mm, cylindrical, equal; concolorous with pileus or darker (especially at base), apex pubescent, towards base with concolorous coarse scales and squamules (like surface or pileus); dry, hollow, single and cespitose. Context dark brown beneath cuticle and at base of stipe. Odour and taste acidulous. Chemical reactions on pileus: KOH-negative.
Spores 6.5-7.5 x 4-4.5 µm, ovate, brown and smooth. Basidia 20-26 x 6-7 µm, 4-spored. Cheilocystidia and pleurocystidia 35-65 x 12-16 µm, fusoid to lageniform, thin-walled, hyaline, encrusted with crystals. Caulocystidia -100 x -10 µm, cylindrical to subfusoid, not well differentiated, hyaline, crystals absent. Cuticle a trichoderm of cylindrical hyphae (5-14 µm diam.), membranes occasionally thick-called (especially in terminal cells), encrusted with brown (KOH) pigment. Clamp connections numerous.

On rotten wood and bark of Nothofagus, N. cliffortioides. New Zealand.

Pileo -15mm lato, ex hemisphaerico convexo, umbrino, squamis concoloribus dense instructo, sicco. Lamellis emarginato-adnatis, pallidis dein argillaceis. Stipite -25 x -1.5mm, cylindrico, pileo concolori, squamis verrucisque obtecto. Odore acidulo. Sporis 6.5-7.5 x 4-4.5 µm, ovatis. Cystidiis fusoideis, tenuitunicatis, incrustatis. Habitatio ad lignum putridum in silvis nothofagineis. Nova Zeiandia. Typus (PDD, 27126).

Among the New Zealand species of Inocybe, I. phaeosquarrosa is the only one with thin-walled cheilo- and pleurocystidia. Furthermore the taxon is well characterised by the coarse warts and scales towards the base of the stipe (cf. I. scabriuscula).