Psathyrella aquatica was observed fruiting in the Rogue River in southern Oregon in 2005 and described as a new species in 2010. The goals of this study were to determine the ability of P. aquatica to grow and fruit in culture, and to observe morphological characters during sporocarp development in terrestrial as well as aquatic environments. Under conditions similar to that for cultivation of terrestrial species, the underwater mushroom P. aquatica grew in culture and formed sporocarps on woody substrates. In vitro, mature sporocarps of P. aquatica formed on woody substrates in containers subjected to submersion and temporary cooling. While in vitro fruiting under predominantly terrestrial conditions supports the hypothesis that P. aquatica may form terrestrial sporocarps, in natural conditions P. aquatica has been observed fruiting only underwater. Terrestrial search parameters for this rare mushroom can now include cultural characters of the mycelium and morphological characters of sporocarps observed in vitro.