We inferred the phylogenetic structure and species limits within Coprinellus by using a newly generated multigene alignment of LSU, ITS and β-tubulin sequences. We sampled 154 specimens of 71 species out of ca. 80 known taxa in Coprinellus and inferred phylogenetic relationships by Bayesian MCMC and ML bootstrapping. Morphological and phylogenetic analyses revealed 17 new species, five of which are described herein. Coprinellus was split into three large clades, one comprising species with an initially continuous sheath of veil (Domestici/Micacei clade) and two consisting of primarily setulose (haired) species (eurysporoid and Core Setulosi clades). The separation of veiled species and the clade structure therein corresponds well to the morphology-based sectional classification, although the inclusion of certain setulose taxa (e.g. C. disseminatus, C. verrucispermus, C. curtus etc.) in these clades necessitates a new morphological definition for the sections. Morphological traits are discussed for all clades of Coprinellus. Species limits in the eurysporoid and Core Setulosi clades are scrutinized in detail. Future directions of species-rank research and an artificial key to the recovered setulose species of Coprinellus is presented.