[3] It is characterised by small, leaf-like squamules forming its primary thallus and distinctive upright podetia (5–15 mm tall) that develop into goblet-shaped cups.

The fungal component shows distinctive growth responses during development that occur only when encountering compatible algal cells, with the fungus growing extremely slowly at ≤1 cm per year in culture.

It typically grows on acidic substrates including rotting wood, organic soil layers, and bare ground, showing particular abundance in pine forests across a range of humidity conditions.

The lectotype specimen is housed at the Farlow Herbarium (FH) at Harvard University and was designated by Teuvo Ahti in 1993 in his work published in Regnum Vegetabile.

These struts appear to be modified branches that have lost their internal cellular contents but maintain their outer walls, and they may help provide structural support to the lichen body.

[11] The thalli of C. grayi contain a diverse array of carotenoid pigments, including β-carotene, α-carotene, β-cryptoxanthin, zeaxanthin, lutein, antheraxanthin, hydroxyechinenone, canthaxanthin, astaxanthin, violaxanthin, mutatoxanthin, neoxanthin and capsochrome.

Finding these genes in C. grayi helped scientists understand that this chemical defense system is much older than previously thought, dating back to the early evolution of a major group of fungi called Pezizomycotina.

[13] Cladonia grayi is a member of the C. chlorophaea group, a complex of morphologically similar lichens that some researchers have historically considered to be merely chemical variants of the same species.

[8] However, due to the subtle nature of these morphological differences, definitive identification often requires thin-layer chromatography to analyze the specific lichen substances present.

When grown with other green algae like Chlorella vulgaris or Trentepohlia species that are never found associated with C. grayi in nature, the fungus shows no specialised growth response, demonstrating the specificity of the fungus-alga recognition system.

In early ontogeny, when the podetium (the erect secondary thallus) is about 100 μm tall, it begins as an obconical, vertically oriented mass of fungal tissue.

[17] A distinctive feature of C. grayi's development is its subtly articulated spiral growth pattern, which becomes most apparent in branching proliferations growing along the cup margin.

The alga also shows a reduced set of nitrate assimilation genes compared to other green algal genomes, suggesting adaptation to obtaining nitrogen primarily from its fungal partner.

Additionally, A. glomerata has retained proteins associated with flagellar motility, matching microscopic observations of flagellated zoospores and gametes in its free-living state, though these structures are not present in the lichenised form.

It can be found on multiple substrates, including rotting wood, organic soil layers (humus), and bare ground, showing a strong preference for highly acidic conditions.

In Mediterranean areas, it is relatively uncommon, occurring in scattered populations primarily in meso- to supramediterranean zones, and showing a preference for Eurosiberian regions from colline to montane elevations.

The species is also present in the Southern Hemisphere, with documented occurrences in both Neotropical regions and Australasia, though these populations tend to be more dispersed and are typically found at higher altitudes.

The species shows distinct ecological preferences in Belarus, being found primarily (90%) in pine forests across a range of humidity conditions, from wet boggy areas to extremely dry stands.