It is found in the Atlantic Forest of southeast Brazil, eastern Paraguay, and far northeastern Argentina.

The chestnut-headed tanager was formally described in 1844 by the English naturalist Hugh Edwin Strickland under the binomial name Tachyphonus ruficeps.

[3] A molecular phylogenetic study published in 2014 found that the chestnut-headed tanager was embedded in a clade containing members of the genus Thlypopsis.

[4] The genera were therefore merged but as Thlypopsis already contained the rust-and-yellow tanager as Thlypopsis ruficeps d'Orbigny & Lafresnaye, 1837, a new specific epithet pyrrhocoma was coined for the chestnut-headed tanager, using the earlier generic name "to communicate past taxonomic connections".

[6] The chestnut-headed tanager is strongly sexual dimorphic: the male is a predominantly grey bird with a chestnut-brown head and a black mask.