Cnidarians are phylogenetically located near the base of the ‘tree of animals’, and their early evolution had a profound impact on the rise of bilaterians. However, the early diversity and phylogeny of this ‘lowly’ metazoan clade has hitherto been enigmatic. Fortunately, cnidarian fossils from the early Cambrian could provide key insights into their evolutionary history. Here, based on a scrutiny of the purported hyolith Burithes yunnanensis Hou et al. from the early Cambrian Chengjiang biota in South China, we reveal that this species shows characters distinct from those typical of hyoliths, not least a funnel‐shaped gastrovascular system with a single opening, a whorl of tentacles surrounding the mouth, and the lack of an operculum. These characters suggest a great deviation from the original definition of the genus Burithes, and a closer affinity with cnidarians. We therefore reassign the material to a new genus: Palaeoconotuba. Bayesian inference of phylogeny based on new anatomical traits identifies a new clade, including Palaeoconotuba and Cambrorhytium, as a stem group of sessile medusozoan cnidarians that are united by the synapomorphies of developing an organic conical theca and a funnel‐like gastrovascular system. This study unveils a stem lineage of medusozoans that evolved a lifelong conical theca in the early Cambrian.