The two subspecies of Banksia paludosa are identical in foliage and flower, and differ only on their size, habit, and response to bushfire.

In heathland habitats such as Nadgee[3] or Barren Grounds Nature Reserves,[4] it may not exceed 1 m (3.3 ft) in height.

[3] Banksia paludosa subspecies astrolux is a more open non-lignotuberous shrub which reaches 5 m (16 ft) high.

[3] The flower spikes are pale- to golden brown in bud, and open to a more gold colour after anthesis.

[6] Variations are seen, one form having a grey limb in bud, and plants with particularly tall flower spikes have been recorded near Huskisson at Jervis Bay.

[7] As with most banksias, in anthesis the opening of the individual buds proceeds up the flower spike from the base to the top (acropetal).

The first pairs of leaves are oppositely arranged on the stem, have 3–4 "teeth" on their margins, and are narrowly obovate in shape.

[10] Banksia paludosa also bears a superficial resemblance to B. oblongifolia, but the latter has a prominent midrib on the leaf underside, the new growth is covered in rusty fur, and the old spikes are bare of flowers.

Its specific epithet is derived from the Latin noun palus "marsh", but is somewhat misleading, as it more often grows on sandstone ridges and heathland.

[12] The current taxonomic arrangement of the genus Banksia is based on botanist Alex George's 1999 monograph for the Flora of Australia book series.

In a morphological cladistic analysis published in 1994, Kevin Thiele placed it in the newly described subseries Integrifoliae, within the series Salicinae.

[2] The latter was first recorded by contributors Brian Walters and Kevin Mills for The Banksia Atlas mapping project in the mid-1980s.

[19] Hybrids with Banksia marginata and B. integrifolia have been recorded at Nadgee Nature Reserve, where all three species occur.

[5] A study of an area of extensive hybridization between B. robur and B. oblongifolia at Barren Grounds Nature Reserve revealed some plants with morphology suggestive of B. paludosa in their parentage, and requiring further investigation.

It was collected in 1966 from Hat Head on the Mid North Coast by Lawrie Johnson, but has not been found there since despite field work in the area.

[5] Both subspecies grow in nutrient-poor well-drained sandstone soils, in open woodland with trees such as Sydney peppermint (Eucalyptus piperita), silvertop ash (E. sieberi), grey gum (E. punctata), narrow-leaved stringybark (E. sparsifolia), red bloodwood (Corymbia gummifera) and smooth-barked apple (Angophora costata), and in heathland with species such as dwarf banksia (Banksia oblongifolia), coral heath (Epacris microphylla), and dagger hakea (Hakea teretifolia).

[8] All banksias have developed proteoid or cluster roots in response to the nutrient-poor conditions of Australian soils (particularly lacking in phosphorus).

[24] B. paludosa is cultivated in Australian gardens, and does best with a sunny aspect and good drainage, in soils with a pH from 5.5 to 7.5.

[12] A form from Jervis Bay with large orange flower spikes was deemed by amateur botanist and banksia enthusiast Alf Salkin to have horticultural potential.