Hygrocybe rajendrae, a new species belonging to subgen. Pseudohygrocybe sect. Coccineae subsect. Squamulosae, is described and illustrated based on morphological characteristics and phylogenetic analysis of nrITS. It is characterized by its yellow pileus with very fine, yellowish fibrillose-squamules at disc, yellowish white to pale yellow distant lamellae, broadly ellipsoid to ellipsoid basidiospores and lack of hymenial cystidia.