It is saprotrophic—meaning that it obtains nutrients by consuming decomposing organic matter—and the fruit bodies appear in small groups or clusters on the decaying logs, trunks, and stumps of deciduous trees, particularly beech.

The fungus, first described scientifically in 1799, is classified in the section Lactipedes of the genus Mycena, along with other species that produce a milky or colored latex.

The fruit bodies of M. haematopus have caps that are up to 4 cm (1+5⁄8 in) wide, whitish gills, and a thin, fragile reddish-brown stem with thick coarse hairs at the base.

They are characterized by their reddish color, the scalloped cap edges, and the dark red latex they "bleed" when cut or broken.

[3] In the classification of Fries, only a few genera were named, and most agaric mushrooms were grouped in Agaricus, which was organized into a large number of tribes.

[7] The specific epithet is derived from Ancient Greek roots meaning "blood" (αἱματο-, haimato-) and "foot" (πους, pous),[8] owing to the red latex than can easily be produced by breaking the mushroom at the base.

cuspidata was initially found in Colorado in 1976, and described as a new variety by American mycologists Duane Mitchel and Alexander H. Smith two years later.

[14] The fruit bodies of Mycena haematopus are the reproductive structures produced by cellular threads or hyphae which grow in rotting wood.

There are additional gills, called lamellulae, that do not extend directly from the margin to the stem; these are arranged in two or three series (tiers) of equal length.

In young fruit bodies, the upper part of the stem is densely covered with a pale cinnamon-colored powder which wears off with age.

[25] Furthermore, range of cap color in M. sanguinolenta is different than in M. haematopus, varying from reddish-to orange-brown, and it lacks a band of partial veil remnants hanging from the margin.

[26] Mycena haematopus obtains nutrients from decomposing organic matter (saprobic) and the fruit bodies can typically be found growing on stumps and well-decayed logs, usually in groups that are joined together by a common base.

The initial stage of wood decay by white rot fungi involves the breakdown of "acid-unhydrolyzable residue" and holocellulose (a mixture of cellulose and hemicellulose).

However, the luminescence is quite weak, and not visible to the dark-adapted eye; in one study, light emission was detectable only after 20 hours of exposure to X-ray film.

[33] The biological purpose of bioluminescence in fungi is not definitively known, although several hypotheses have been suggested: it may help attract insects to help with spore dispersal,[34] it may be a by-product of other biochemical functions,[35] or it may help deter heterotrophs that might consume the fungus.

Compounds of this type also occur in marine sponges and are attracting research interest due to various biological properties, such as cytotoxicity against tumor cell lines, and both antifungal and antimicrobial activities.