Xylaria subtropicalis, a species new to science, was collected from a montane cloud forest in eastern Mexico. It is described and illustrated, based on detailed macro-and microscopic morphological characteristics, habitat, and DNA sequence data. The distinctive morphological differences between X. subtropicalis and other Xylaria species include: the stromata being significantly erumpent, the size of the ascospores being 23-28 × 13-15 µm, and a straight germ slit as long as the spore. To determine if this was a novel species, ITS sequences were generated and compared with 2478 sequences available for the genus from GenBank using the software USEARCH. Additionally, a phylogenetic reconstruction was performed with Parsimony Ratchet, Maximum Likelihood, and Bayesian Inference, using 122 concatenated ITS sequences, and segments from the 28S rDNA and RPB2. Sequences of this novel species form a strongly supported lineage, clearly separated from other species of Xylaria.Phylogenetic relationships indicate that there have been numerous morphological transformations within the genus.