The dark chestnut-coloured caps are covered with white, easily removed scales, and reach diameters of up to 2 cm (0.8 in) wide.

The species was first discovered in 1992 in Kuitpo Forest, South Australia, and reported as new to science in a 1995 Australian Systematic Botany publication.

[3] With respect to infrageneric classification (i.e., taxonomic ranking below the level of genus) in Mycena, several characteristics suggest the mushroom fits best in Rudolph Arnold Maas Geesteranus' section Fragilipedes: the ellipsoidal, amyloid spores; dextrinoid spore-bearing tissue; smooth cheilocystidia; gills with the edge the same colour as the face; and the non-slimy, distinctly coloured cap.

[1] According to the 1986 infrageneric classification proposed by Rolf Singer,[4] the mushroom would be classified in subgenus Mycena, subsection Ciliatae, stirps Alcalina (roughly equivalent to section Fragilipedes of Maas Geesteranus) because of the amyloid spores, smooth, elongated cheilocystidia, dull-coloured pigment, and stem without either latex or a slimy sheath.

In terms of staining reactions, they are acyanophilous (not absorbing methyl blue dye), and amyloid (turning blue-black in Melzer's reagent).

The cells are dextrinoid (producing a black to blue-black positive reaction with Melzer's reagent), and reddish brown.

The surface of the stem is made of filamentous hyphae, 2.2–4.0 μm in diameter, either smooth or with sparse to moderately dense short, rod-like to cylindrical projections.

The stem tissue consists of short, cylindrical cells, up to 28.0 μm in diameter that are smooth, thin-walled, and with or without brown pigment in the cytoplasm.

However, one noted unintentional misidentification occurred when the M. nargan on the cover photograph of Bruce A. Fuhrer's 2005 book A Field Guide to Australian Fungi was labelled as Mycena nivalis, a species with a white cap.

[6] A common mushroom, Mycena nargan is found growing singly or in clusters on the underside of rotting wood in wet and shaded areas, and is especially partial to Eucalyptus and Pinus pinaster.