First collected in 2005, it was described and named in 2010 by Fernando Esteve-Raventós and Gabriel Moreno, and is known only from oak forests in Ciudad Real Province, Spain.

The mushrooms were found growing directly from the acidic soil of the forest floor, surrounded by plant waste, during November.

Morphologically, the dark colour of the gills and stem, lack of a strong taste, and characters of the cystidia (large cells found on the mushrooms) are the most distinguishing characteristics of X. setulipes.

It seems most closely related to X. fraxinophila, X. cornui, X. campanelloides and X. cauticinalis, but, according to Esteve-Raventós and colleagues, further analysis is required to accurately judge the relationships between the species of Xeromphalina.

[7] Within Xeromphalina, X. setulipes is part of the section Mutabiles, which also contains X. campanelloides, X. cauticinalis, X. cirris, X. cornui, and X. fraxinophila.

[8] Phylogenetic analysis performed by Esteve-Raventós and colleagues concluded that X. setulipes appears to be most closely related to X. fraxinophila, X. cornui, X. campanelloides and X. cauticinalis,[2] the five of which are clearly separate from the group containing X. campanella, X. kauffmanii, X. brunneola, and, possibly, X. junipericola.

[10] Further research, analysing the ITS or RPB2 loci, could serve to help clarify the precise relationships of species and positions of clades within the genus.

It is not particularly hygrophanous (it does not change color as it loses or absorbs water), and, unlike the caps of related species, is neither grooved nor translucent at the margin.

The gills are subdistant (neither close to, nor distant from, one another) and are of a distinctive shape; they are decurrent, that is, they extend down the stem, and are noticeably arched.

They are amyloid, meaning that they stain a dark colour in Melzer's reagent or Lugol's solution, and have thin cell walls.

They are packed together, extending outwards from the gill in a manner reminiscent of coral, as is sometimes seen in members of the genus Mycena.

The hyphae typically have fairly thin, smooth walls, but they can have a small amount of brown pigment, which stains orange-brown in potassium hydroxide.

They share the amber-coloured hair towards the base of the stem and both grow on soil, as opposed to directly onto wood.

[13] Other species within Mutabiles include X. campanelloides, which can be differentiated by the shape of the thin-walled caulocystidia and yellow flesh in the stem.

[6] Members of the Mycenaceae are saprotrophic,[14] and X. setulipes was found in woodland made up of cork oak (Quercus suber) and Portuguese oak (Quercus faginea), with undergrowth consisting of gum rockrose (Cistus ladanifer), prickly juniper (Juniperus oxycedrus), and various heathers (Erica species).

[6] The mushrooms were growing in clusters on the forest floor from acid soil, surrounded by dead plant matter.