Comparative morphological and anatomical studies on the fruticose lichen genus Stereocaulon show that the pseudopodetial structures originate in two distinct ways, according to which it is proposed to divide the genus into two new subgenera, Holostelidium and Enteropodium. These subgenera are further divided, on a phylogenetic basis, into sections and subsections, some of which are adaptations of previously existing groupings. A phytogeographical analysis of the present day distribution of the species confirms the phylogenetic validity of the proposed subdivisions, and shows that the subgenus Holostelidium originated in the southern hemisphere, while the subgenus Enteropodium is of boreal origin. An attempt is made to reconstruct the hypothetical ancestral crustaceous prototype, which approximates closely to certain forms of Toninia (Catillariales). The affinities of Stereocaulon are therefore with the Lecideaceae, and not with the Cladoniaceae, where it is commonly placed. The chemical compounds produced by Stereocaulon species are enumerated, and in order to simplify taxonomy in lichens generally, it is proposed to regard morphologically indistinguishable but chemically different individuals as chemical strains, and not as distinct species as has been the previous common practice.