The cap of Dendrocollybia racemosa is typically between 3 to 10 mm (0.1 to 0.4 in) in diameter, and depending on its stage of development, may be conic to convex, or in maturity, somewhat flattened with a slight rounded central elevation (an umbo). The cap surface is dry and opaque, with a silky texture; its color in the center is fuscous (a dusky brownish-gray color), but the color fades uniformly towards the margin. The margin is usually curved toward the gills initially; as the fruit body matures the edge may roll out somewhat, but it also has a tendency to fray or split with age. There may be shallow grooves on the cap that correspond to the position of the gills underneath, which may give the cap edge a crenate (scalloped) appearance. The flesh is very thin (less than 1 mm thick) and fragile, lacking in color, and has no distinctive odor or taste. The gills are relatively broad, narrowly attached to the stem (adnexed), spaced closely together, and colored gray to grayish-tan, somewhat darker than the cap. There are additional gills, called lamellulae, that do not extend all the way to the stem; they are interspersed between the gills and arranged in up to three series (tiers) of equal length. Occasionally, the fungus produces stems with aborted caps, or with the caps missing entirely.
“ Stem resembles the raceme of the currant-bush, from whence the berries have been plucked; branches terminated by hyaline beads which disappear. ”
The stem is 4 to 6 cm (1.6 to 2.4 in) long by 1 mm thick, roughly equal in width throughout, and tapers to a long “root” which terminates in a dull black, roughly spherical sclerotium. The stem may be buried deeply in its substrate. The stem surface is roughly the same color as the cap, with a fine whitish powder on the upper surface. In the lower portion, the stem is brownish, and has fine grooves that run lengthwise up and down the surface. The lower half is covered with irregularly arranged short branch-like protuberances at right angles to the stem that measure 2–3 by 0.5 mm. These projections are cylindrical and tapering, with ends that are covered with a slime head of conidia (fungal spores produced asexually). D. racemosa is the only mushroom species known that forms conidia on side branches of the stem. The sclerotium from which the stem arises is watery grayish and homogeneous in cross section (not divided into internal chambers), with a thin dull black outer coat, and measures 3 to 6 mm (0.12 to 0.24 in) in diameter. American mycologist Alexander H. Smith cautioned that novice collectors will typically miss the sclerotium the first time they find the species.[