It is found on rotting wood and in other damp habitats, typically growing in small groups, sometimes forming clusters.

Despite this, it is popular among mushroom hunters due to its unusual "eyelash" hairs, making it memorable and easy to identify.

A 1965 study reported the carotenoid composition of this fungus, found to contain a high proportion of monocyclic carotenes—carotenes with only one cyclohexene ring, such as beta-carotene.

[12] Although David Arora describes S. scutellata as "easily recognizable",[7] it can be mistaken for S. umbrarum (which has a larger fruiting body and larger spores, as well as having shorter, less obvious hairs), S. erinaceus (which is slightly smaller, and orange to yellow in colour, with smooth spores), Cheilymenia crucipila (which is much smaller, with short, pale hairs and spores lacking oil droplets), and Melastiza chateri (which is bright orange with small brown hairs).

[7] Similar fungi that favour dung over rotting wood include Cheilymenia coprinaria, C. theleboides, and Coprobia granulata while species such as Anthracobia macrocystis, A. melaloma, Trichophaea abundans, Pyronema omphalodes, Pulvinula carbonaria and P. archeri are cup fungi that favour burned-over ground.

[7] It has also been collected in Cameroon,[18] Colombia,[20] East Asia,[2][21] India,[22] Iceland,[23] Israel,[24] New Guinea and the Solomon Islands,[25] Russia,[26] and Turkey.

[27] A saprobic species, it grows generally in subalpine regions,[3] fruiting on rotten wood and damp soil,[4] and can also sometimes be found on ashes, wet leaves or bracket fungi.

[28] A six-year study of the succession of fungal flora appearing on freshly cut stumps of poplar trees (Populus canadensis) showed that S. scutellata appeared roughly in the middle of the fungal succession (about 2–4 years after the tree had been cut), along with the species Ascocoryne sarcoides, Scutellinia cervorum, and Lasiosphaeria spermoides.

[15] Though sometimes found alone, they typically fruit in groups,[3] sometimes forming dense clusters on rotting wood or other plant detritus.

[3] Vera McKnight describes it as "a most attractive little fungus", and claims it is easy to notice due to its bright colouration.